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[CYBERMEDIA LETTERHEAD]
August 3, 1998
To Our Stockholders:
On behalf of the Board of Directors of CyberMedia, Inc. (the "Company"), we
are pleased to inform you that on July 28, 1998, the Company entered into an
Agreement and Plan of Merger (the "Merger Agreement") with Networks Associates,
Inc. and Cyclone Acquisition Corp., its wholly owned subsidiary, pursuant to
which Cyclone Acquisition Corp. today has commenced a cash tender offer (the
"Offer") to purchase all of the outstanding shares (the "Shares") of the Common
Stock of the Company at $9.50 per share. Under the Merger Agreement, upon
satisfaction of certain conditions, the Offer will be followed by a merger (the
"Merger") in which any remaining Shares will be converted into the right to
receive $9.50 per Share in cash, without interest (except any Shares as to which
the holder has properly exercised dissenter's rights of appraisal). Stockholders
owning approximately 21% of the Company's outstanding Shares have agreed to
tender their Shares in the Offer.
THE COMPANY'S BOARD OF DIRECTORS HAS UNANIMOUSLY (A) DETERMINED THAT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF
THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE HOLDERS
OF THE SHARES, (B) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND (C) RESOLVED TO RECOMMEND THAT THE
STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND APPROVE AND ADOPT THE MERGER
AGREEMENT AND APPROVE THE TRANSACTIONS CONTEMPLATED THEREBY.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
that is being filed today with the Securities and Exchange Commission. Among
other things, the Board of Directors considered the opinion of its financial
advisor, Hambrecht & Quist LLC, that the consideration to be received by the
holders of Shares in the Offer and Merger is fair to such holders from a
financial point of view.
In addition to the attached Schedule 14D-9, enclosed also is the Offer to
Purchase dated August 3, 1998, together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares in the Offer. These
documents state the terms and conditions of the Offer and the Merger and provide
instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
shares pursuant to the Offer.
On behalf of the Board of Directors,
LOGO
Kanwal Rekhi
Chief Executive Officer and
Chairman of the Board
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CYBERMEDIA, INC.
(NAME OF SUBJECT COMPANY)
CYBERMEDIA, INC.
(NAMES OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
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23249P107
(CUSIP NUMBER OF CLASS OF SECURITIES)
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KANWAL REKHI
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
CYBERMEDIA, INC.
2850 OCEAN PARK BLVD., SUITE 100
SANTA MONICA, CA 90405
(310) 664-5000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
ARTHUR F. SCHNEIDERMAN, ESQ.
BLAIR W. STEWART, JR., ESQ.
DANIEL R. MITZ, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is CyberMedia, Inc., a Delaware corporation
(the "Company"). The address of the principal executive offices of the Company
is 2850 Ocean Park Boulevard, Suite 100, Santa Monica, California 90405. The
title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9"
or "Statement") relates is the common stock, $0.01 par value, of the Company
(the "Common Stock"). Unless the context otherwise requires, as used herein the
term "Shares" shall mean shares of Common Stock.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This Statement relates to the cash tender offer (the "Offer") described in
the Tender Offer Statement on Schedule 14D-1, dated August 3, 1998 (as amended
or supplemented, the "Schedule 14D-1"), filed by Networks Associates, Inc., a
Delaware Corporation ("Parent"), and Cyclone Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Parent ("Purchaser"), with the
Securities and Exchange Commission (the "SEC"), relating to an offer to purchase
all of the issued and outstanding Shares at $9.50 per Share (such amount, or any
greater amount per Share paid pursuant to the Offer, hereinafter referred to as
the "Offer Price"), net to the seller in cash, upon the terms and subject to the
conditions set forth in Purchaser's Offer to Purchase, dated August 3, 1998 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which together
with any amendments or supplements thereto constitute the "Offer Documents").
The Offer is being made in accordance with an Agreement and Plan of Merger,
dated July 28, 1998 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. Pursuant to the Merger Agreement, as soon as practicable after
completion of the Offer and satisfaction or waiver, if permissible, of certain
conditions, Purchaser will be merged with and into the Company (the "Merger"),
and the Company will become a wholly owned subsidiary of Parent (the "Surviving
Corporation"). At the effective time of the Merger (the "Effective Time"), each
Share issued and outstanding immediately prior to the Effective Time (other than
Shares held by Parent, Purchaser, the Company or any of their wholly-owned
subsidiaries and Shares held by stockholders of the Company who will have
properly perfected their dissenters' rights, if any, under Delaware law) will be
converted into the right to receive the Offer Price without interest. The Merger
Agreement is summarized in Item 3 of this Schedule 14D-9.
The Offer Documents indicate that the principal executive offices of Parent
and Purchaser are located at 3965 Freedom Circle, Santa Clara, California 95054.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the Company's Proxy Statement, dated May 6, 1998,
relating to its June 10, 1998 Annual Meeting of Stockholders (the "Proxy
Statement") under the headings "Security Ownership of Certain Beneficial
Owners," "Directors and Management," "Director Compensation," "Compensation of
Executive Officers," "Stock Option Grants and Exercises -- Option Grants in Last
Fiscal Year," "Employment Agreements," "Certain Relationships and Related
Transactions" and "Report of the Compensation Committee of the Board of
Directors." A copy of the applicable portions of the Proxy Statement has been
filed as an exhibit to this Schedule 14D-9 and is incorporated herein by
reference.
Certain Agreements and Plans
Executive Employment Policy. The Company established an Executive
Employment Policy (the "VP Policy") applicable to each Vice President ("VP") of
the Company. Pursuant to the VP Policy, upon a Termination due to Change of
Control (as defined below) of a VP or upon Termination without Cause of a
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VP (as defined below), such VP is entitled to the following (provided that each
of such severance benefits shall be given to a VP on only one occasion):
Severance Payment. Such VP will receive a lump sum severance payment (the
"Severance Payment") equal to six months annual base salary in effect
immediately prior to the termination, subject to all applicable withholding and
employment taxes. The Severance Payment will be reduced by the amount of pay the
VP receives in lieu of notice under the Worker Adjustment and Retraining Act, if
applicable. The VP Policy provides that the benefits provided under the VP
Policy shall be in lieu of any other severance plan benefits provided by the
Company under any other plan, policy, or agreement, such that the severance
benefits payable under the VP Policy shall be reduced by any severance paid or
payable to the VP by the Company under any other plan, policy or agreement;
provided, however, that if the VP is entitled under any prior written and
executed agreement to severance benefits that are greater than the severance
benefits provided under the VP Policy, the VP shall not forfeit his/her rights
to the difference between the severance benefits provided under such agreement
and the severance benefits provided under the VP Policy.
Coverage Under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"). If such VP elects COBRA continuation coverage pursuant to federal
law, the Company shall pay the VP's COBRA premiums for a six month period after
such VP's termination.
Acceleration of Option Vesting. In addition to any vesting or accelerated
vesting under the Company's Option Plans (as defined below in "Company Stock
Plans"), such VP's unvested stock options shall immediately vest as if the VP
were employed for an additional 12 months. Such VP shall have 90 days following
his or her termination date to exercise vested shares. The period to exercise
shall be extended, but only as long as necessary in order to allow the VP to
exercise such options without violating regulatory trading rules.
Benefits. Such VP shall receive the benefits, if any, under the Company's
401(k) Plan, employee bonus plans, employee stock purchase plans and other
Company benefit plans to which the VP may be entitled pursuant to the terms of
such plans. The VP's participation and rights in other benefit plans as may be
provided by the Company at the time of his or her termination of employment
shall be governed solely by the terms and conditions of such other plans, if
any. All other wages and vacation accrued through the date of termination shall
be paid, but there shall be no proration of incentive bonus unless "earned"
under the provision of the applicable incentive bonus plan.
As used in the VP Policy, (i) a "Termination due to Change of Control"
means a Termination without Cause that occurs within one year after a Change of
Control, as defined below; (ii) "Termination without Cause" means (A) any
termination of a VP initiated by the Company unless Cause (as defined below) is
the grounds for termination; (B) any termination of a VP, initiated by a VP, for
a reason that constitutes a Constructive Termination (as defined below); or (C)
a termination, initiated by a VP, because any successor to the Company fails to
assume the obligations under the VP Policy; provided that notwithstanding the
foregoing, the term "Termination without Cause" shall not mean any termination
of a VP due to a VP's death, retirement, or permanent disability; (iii) "Cause"
means (A) any act of fraud, misappropriation, embezzlement, or other act of
material and unlawful dishonesty taken by a VP against the Company; (B) the
conviction of a felony which the Company reasonably believes had or will have a
material detrimental effect on the Company's reputation or business, (C) any act
by a VP which constitutes gross misconduct and is injurious to the Company and
(D) any act by a VP which the Company determines constitutes a breach of
security and is injurious to the Company; (iv) Change of Control means the
occurrence of any of the following events: (A) a merger or consolidation
involving the Company in which the shareholders of the Company immediately prior
to such merger or consolidation own less than 50% of the voting power of the
surviving corporation, (B) the sale of all or substantially all, of the assets
of the Company or (C) any person, (as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act")) or group (within the meaning of Rule 13d
of the Exchange Act) becoming the beneficial owner (within the meaning of Rule
13d-3 of the Exchange Act) of securities representing more than 50% of the
voting power of the Company then outstanding; and (v) (D) "Constructive
Termination" means the occurrence of any of the following conditions, without
the VP's written consent, which condition(s) remain(s) in effect 20 days after
written
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notice to the Company Board from the VP of such condition(s): (A) a decrease in
the VP's base salary, or material decrease in the VP's annual target bonus,
quarterly bonus, or employee benefits; (B) a material decrease in the VP's
position, authority, duties and responsibilities; or (C) the relocation of the
VP to a facility or location more than thirty (30) miles from the VP's
then-existing facility or location.
The Merger Agreement
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement which is incorporated by reference herein and a copy of
which has been filed as an Exhibit to this Schedule.
Commencement of the Offer. The Merger Agreement provides that as promptly
as practicable but in no event later than five business days after the date of
the Merger Agreement, Purchaser shall, and Parent shall cause Purchaser to,
commence the Offer at the Offer Price.
Merger. The Merger Agreement provides that, as soon as practicable after
expiration of the Offer and the receipt of any required approvals and adoption
of the Merger Agreement by the stockholders of the Company, to the extent
required by the Delaware General Corporation Law (the "DGCL"), and the
satisfaction or waiver, if possible, of certain other conditions contained in
the Merger Agreement, Purchaser will be merged with and into the Company, with
the Company continuing as the surviving corporation (the "Surviving
Corporation") (the "Effective Time").
Vote Required to Approve Merger. In the Merger Agreement, the Company has
agreed, if required by the DGCL in order to consummate the Merger, to take all
action necessary in accordance with the DGCL to convene and hold a special
meeting of its stockholders (the "Special Meeting") for the purpose of
considering and taking action on the Merger Agreement as soon as practicable
following the acceptance for payment of and payment for Shares by Purchaser
pursuant to the Offer. The Company has further agreed that if a Special Meeting
is convened, the Company shall prepare and file with the Commission a
preliminary proxy statement relating to the Merger and the Merger Agreement, and
use its best efforts (i) to obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, to respond as soon as practicable to any comments made
by the Commission with respect to the preliminary proxy statement and cause a
definitive proxy statement (the "Proxy Statement") to be mailed to its
stockholders and (ii) to obtain the necessary approvals of the Merger and
adoption of the Merger Agreement by its stockholders. Subject to compliance with
applicable fiduciary duties, the Company, acting through its Board of Directors,
shall include in the Proxy Statement the recommendation of its Board of
Directors that stockholders of the Company vote in favor of approval and
adoption of the Merger and the Merger Agreement. In the event that proxies are
to be solicited from the Company's stockholders, the Company shall use its best
efforts to obtain the necessary approvals of the Merger and adoption of the
Merger Agreement by stockholders. At any such Special Meeting, Parent and
Purchaser have agreed that all of the Shares then owned by Parent, Purchaser or
any other subsidiaries of Parent will be voted in favor of the Merger.
Board Representation. If Purchaser purchases Shares pursuant to the Offer,
the Merger Agreement provides that Parent will be entitled to designate such
number of directors, rounded up to the next whole number, on the Company Board
as is equal to the product of the total number of directors (determined after
giving effect to the directors elected pursuant to this sentence) multiplied by
the percentage that the aggregate number of Shares beneficially owned by Parent
or its affiliates bears to the total number of Shares then outstanding. The
Company has further agreed, upon request of Parent, to promptly take all actions
necessary to cause Parent's designees to be so elected, including, if necessary,
increasing the size of the Company Board (to the extent permitted by the
Company's Certificate of Incorporation and By-Laws) and/or seeking the
resignations of one or more existing directors, provided, however, that prior to
the Effective Time, the Company Board shall at all times have at least two
members who are members of the Company Board on the date of the Merger Agreement
and are neither officers of the Company or any of its subsidiaries, nor officers
or directors of Purchaser or any of its affiliates, or other independent
directors appointed to replace such persons.
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Conversion of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Purchaser, the Company or the
stockholders of the Company, each Share issued and outstanding immediately prior
thereto (other than Shares held by Parent, Purchaser, the Company or any of
their wholly-owned subsidiaries and Shares with respect to which appraisal
rights are properly exercised ("Dissenting Shares")) shall be canceled and
extinguished and shall be converted into the right to receive the Offer Price.
Each share of common stock of Purchaser issued and outstanding immediately prior
to the Effective Time shall, at the Effective Time, by virtue of the Merger and
without any action on the part of Purchaser, the Company or the holders of
Shares, be converted into and shall thereafter evidence one validly issued and
outstanding share of common stock of the Surviving Corporation.
Assumption of Stock Option Plans. The Merger Agreement provides that at the
Effective Time each option outstanding under any of the Option Plans (an
"Option") shall be assumed by Parent and shall be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under such
Option (including, without limitation, any repurchase rights or vesting
provisions) shares of Common Stock, $0.01 par value, of Parent ("Parent Common
Stock"), except that (i) such Option shall be exercisable for that number of
shares of Parent Common Stock equal to the product of the number of Shares that
were issuable upon exercise of such Option immediately prior to the Effective
Time multiplied by a fraction, the numerator of which is the Offer Price and the
denominator of which is the average of the last reported sale prices of Parent
Common Stock on the five trading days immediately preceding the date of the
Effective Time, rounded down to the nearest whole number of shares of Parent
Common Stock and (ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed Option will be equal to the
aggregate exercise price for the Shares purchasable pursuant to such Option
immediately prior to the Effective Time divided by the number of full shares of
Parent Common Stock purchasable thereafter in accordance with the foregoing,
rounded down to the nearest whole cent.
Cancellation of Warrants. The Merger Agreement provides that Parent shall
not assume or continue any outstanding warrants for Shares ("Warrants"). The
Company, Parent and Purchaser have agreed that all appropriate action will be
taken to provide that, at or following the Effective Time, each holder of an
outstanding Warrant shall be entitled to receive an amount in cash equal to the
product of (i) the excess, if any, of the Offer Price over the per share
exercise price of such Warrant and (ii) the number of Shares subject to such
Warrant which are exercisable immediately prior to the Effective Time.
Employee Benefit Arrangements. The Merger Agreement provides that the
Company shall, and Parent shall cause the Company to, honor and, from and after
the Effective Time, the Surviving Corporation to honor, all obligations under
the employment and severance agreements to which the Company or any of its
subsidiaries is presently a party. Notwithstanding the foregoing, from and after
the Effective Time, the Surviving Corporation shall have the right to amend,
modify, alter or terminate any Company Employee Plan (as defined below),
provided that any such action shall not affect any rights for which the
agreement or consent of the other party or a beneficiary is required; provided
that, except as prohibited by the Company's 401(k) plan or applicable law, the
Company will promptly take any and all actions necessary and appropriate to
terminate the Company's 401(k) plan, including without limitation (i) adoption
of resolutions by the Company Board terminating the 401(k) plan immediately
prior to consummation of the Offer and (ii) timely delivery of any notices
required under the terms of the 401(k) plan. "Company Employee Plan" is defined
as any plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise, funded or
unfunded, including without limitation, each "employee benefit plan," within the
meaning of Section 3(3) of ERISA which is or has been maintained, contributed
to, or required to be contributed to, by the Company or any affiliate of the
Company for the benefit of any employee of the Company.
In addition, employees of the Surviving Corporation immediately following
the Effective Time who immediately prior to the Effective Time were employees of
the Company or any Company subsidiary shall be given credit for purposes of
eligibility and vesting under each employee benefit plan, program, policy or
arrangement of Parent or the Surviving Corporation in which such employees
participate subsequent to the Effective Time for all service with the Company
and any Company subsidiary prior to the Effective Time (to
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the extent such credit was given by the Company or any Company subsidiary) for
purposes of eligibility and vesting.
Conditions to the Offer.
The Merger Agreement provides that, notwithstanding any other provision of
the Offer, and in addition to (and not in limitation of) Purchaser's rights to
extend and amend the Offer at any time, Purchaser shall not be required to
accept for payment or pay for, or may terminate or amend the Offer and may
postpone the acceptance of, and payment for, subject to Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (whether or not
any Shares have theretofore been accepted for payment or paid for pursuant to
the Offer), any Shares tendered pursuant to the Offer if at Midnight, New York
City time, on Friday, August 28, 1998 (the "Expiration Date") (i) the Minimum
Condition (as defined below) is not satisfied, (ii) any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvement of 1976 Act, as amended
(the "Hart-Scott-Rodino Act"), shall not have expired or been terminated, or
(iii) any of the following exist:
(a) any statute, rule, regulation, legislation, ruling, judgment,
order or injunction enacted, enforced, promulgated, amended, issued or
deemed applicable to the Offer or the Merger, by any governmental entity of
competent jurisdiction that (1) makes illegal or otherwise prohibits
consummation of the Offer or the Merger, (2) prohibits or materially limits
the ownership or operation by Parent or Purchaser of all or any substantial
portion of the business or assets of the Company (or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as
a whole), or compels Parent or Purchaser to dispose of, divest or hold
separately all or any substantial portion of the business or assets of
Parent, Purchaser or the Company (or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole), or imposes
any material limitation on the ability of Parent or Purchaser to conduct
its business or own such assets, (3) imposes any material limitation on the
ability of Parent or Purchaser effectively to acquire, hold or exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote any Shares acquired or owned by Purchaser or Parent on the
adoption of the Merger Agreement and all other matters properly presented
to the Company's stockholders, (4) requires divestiture by Parent or
Purchaser of any Shares, or (5) results in a Material Adverse Effect on the
Company (for the purposes of the Merger Agreement, the term "Material
Adverse Effect" when used in connection with an entity is defined as any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition or results of operations
of such entity and its subsidiaries, taken as a whole, except for those
changes, events and effects that (i) are directly caused by conditions
affecting the United States economy as a whole or affecting the industry in
which such entity competes as a whole, which conditions do not affect such
entity in a disproportionate manner, or (ii) are related to or result from
the announcement or pendency of the Offer and/or the Merger); or
(b) there shall be instituted and pending any action or proceeding by
any governmental entity that would reasonably be expected to result in any
of the consequences referred to in clauses (1) through (5) of paragraph (a)
above; or
(c) any change shall have occurred that has had, or reasonably would
be expected to have, a Material Adverse Effect on the Company; or
(d) the Merger Agreement shall have been terminated in accordance with
its terms; or
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement, when read without any exception or qualification
as to materiality or Material Adverse Effect, shall not be true and
correct, as if such representations and warranties were made immediately
prior to the consummation of the Offer (except as to any such
representation or warranty which speaks as of a specific date, which must
be untrue or incorrect as of such specific date), except where the failure
or failures to be so true and correct, individually or in the aggregate, do
not and would not reasonably be expected to have a Material Adverse Effect
on the Company; or
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(f) the Company shall have failed to perform or to comply with any of
its obligations, covenants or agreements under the Merger Agreement in any
material respect.
"Minimum Condition" means that a number of Shares outstanding that would
constitute at least a majority of the Shares then outstanding, on a fully
diluted basis (including for the purpose of such calculation all Shares issuable
upon exercise of all Options and Warrants which are vested or scheduled to vest
on or before October 31, 1998 with an exercise price less than the Offer Price,
and conversion of all convertible securities or other rights to purchase or
acquire Shares with a conversion price less than the Offer Price) shall be
validly tendered and not withdrawn prior to the Expiration Date or shall be held
by Parent, Purchaser or any affiliate thereof or issuable upon the exercise or
conversion of any equity or debt security held by Parent, Purchaser or any
affiliate thereof which is then exercisable or convertible.
The foregoing conditions (including those set forth in clauses (i) and (ii)
of the initial paragraph) are for the benefit of Parent and Purchaser and may be
asserted by Parent or Purchaser regardless of the circumstances giving rise to
any such conditions (except for any action or inaction in material breach of the
Merger Agreement by Parent or Purchaser) and, except for the Minimum Condition,
may be waived by Parent or Purchaser, in whole or in part, at any time and from
time to time in their sole discretion, in each case, subject to the terms of the
Merger Agreement. The failure by Parent or Purchaser at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
Conditions to Obligations of All Parties to the Merger. The respective
obligations of Parent, Purchaser and the Company to consummate the Merger are
subject to the following conditions: (i) the stockholders of the Company shall
have duly approved and adopted the Merger Agreement if required by the DGCL;
(ii) Purchaser shall have accepted for payment and paid for Shares pursuant to
the Offer in accordance with the terms of the Merger Agreement; and (iii) the
consummation of the Merger shall not be restrained, enjoined or prohibited by
any order, judgment, decree, injunction or ruling and there shall not have been
any statute, rule or regulation enacted, promulgated or issued which prevents
the consummation of the Merger or has the effect of making the purchase of the
Shares illegal.
Schedule 14D-9. In the Merger Agreement, the Company has agreed that
concurrently with the filing by Parent and Purchaser of the Schedule 14D-1, or
promptly thereafter on the same day, it will file with the Commission this
Schedule 14D-9 (the "Schedule 14D-9") containing the recommendation of the
Company Board that the Company's stockholders accept the Offer, and approve and
adopt the Merger Agreement and approve the transactions contemplated thereby and
shall disseminate the Schedule 14D-9 as required by Rule 14d-9 under the
Exchange Act, provided, that such recommendation may be withdrawn, modified or
amended in connection with a Superior Proposal (as defined below).
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser,
including, but not limited to, representations and warranties relating to the
Company's organization and qualification, capitalization, obligations with
respect to capital stock, authority to enter into the Merger Agreement and carry
out the transactions contemplated thereby, Commission filings (including
financial statements), absence of certain changes or events, taxes, title to
properties, absence of liens and encumbrances, intellectual property,
compliance, permits and restrictions, litigation, broker's and finder's fees,
employee benefit plans and employee matters, environmental matters, agreements,
contracts and commitments, change of control payments, customs and information
supplied by the Company. The Company has also represented that the Company Board
has taken or will take all action so that the restrictions contained in Section
203 of the DGCL applicable to a "business combination" (as defined in such
Section 203) will not apply to the execution, delivery or performance of the
Merger Agreement or the Company Option Agreement or to the consummation of the
Offer or the Merger or any of the other transactions contemplated by the Merger
Agreement.
Parent and Purchaser have also made customary representations and
warranties to the Company, including, but not limited to, representations and
warranties relating to Parent's and Purchaser's organization and qualification,
their authority to enter into the Merger Agreement and consummate the Offer and
the Merger, required consents and approvals, documents related to the Offer, the
availability of sufficient funds
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necessary to satisfy all of Parent's and Purchaser's obligations to purchase all
outstanding Shares pursuant to the Offer and the Merger and to pay all related
fees and expenses, and the absence of certain litigation.
Conduct of Company's Business Pending Merger. Except as contemplated by the
Merger Agreement, during the period from the date of the Merger Agreement and
continuing until the earlier of the termination of the Merger Agreement pursuant
to its terms, the Effective Time, or such time as Parent's designees shall
constitute a majority of the Company Board, the Company has agreed that the
Company and each of its subsidiaries shall, except to the extent that Parent
shall otherwise consent in writing, carry on its business, in all material
respects, in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable laws and regulations, pay its debts and taxes when due, subject
to good faith disputes over such debts or taxes, pay or perform other material
obligations when due, subject to good faith disputes over such obligations, and
use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees, and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings. In addition, except as permitted
by the terms of the Merger Agreement, without the prior written consent of
Parent, during such period, the Company has agreed not to do any of the
following and not to permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, or accelerate, amend or change
the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock
plans or authorize cash payments in exchange for any options granted under
any of such plans except pursuant to written agreements outstanding, or
policies existing, on the date of the Merger Agreement;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date of the Merger Agreement, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company's
intellectual property, or enter into grants to future patent, copyright or
other intellectual property rights, other than non-exclusive licenses
granted in the ordinary course of business and consistent with past
practice (it being agreed that Parent shall not unreasonably withhold
consent to any non-exclusive license agreement related to the Company's
enterprise business and that Parent's failure to reasonably object to any
such agreement within five business days of any request for consent shall
constitute such consent);
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock; provided that any
of the Company's wholly-owned subsidiaries may declare, set aside or pay
dividends or make other distributions with respect to their capital stock
in the ordinary course of business and consistent with past practices.
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of the Company or its subsidiaries, except
repurchases of unvested shares at cost in connection with the termination
of the service relationship with any employee, director or consultant
pursuant to stock option or purchase agreements in effect on the date of
the Merger Agreement (which repurchases the Company shall be obligated to
effectuate if the repurchase price is less than the Offer Price);
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any
shares of the capital stock of the Company or any of its subsidiaries, or
any securities convertible into shares of such capital stock, or
subscriptions, rights, warrants or options to acquire any shares of such
capital stock or any securities convertible into shares of capital stock,
or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible securities, other than (i) the
issuance, delivery and/or sale of Shares pursuant to the exercise of
Options therefor outstanding as of the date of the Merger
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Agreement, and (ii) the grant of employee stock options, consistent with
the Company's established past practice for similarly situated employees,
to non-officer employees who are hired in accordance with the Merger
Agreement;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a material portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or, except
as permitted by the Merger Agreement, otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
business of the Company or enter into any joint venture, strategic
partnership or alliance;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets that are material, individually or in the aggregate,
to the business of the Company, except sales of inventory and used
equipment, or the license of the Company's products in the ordinary course
of business consistent with past practice (it being agreed that Parent
shall not unreasonably withhold consent to any non-exclusive license
agreement related to the Company's enterprise business and that Parent's
failure to reasonably object to any such agreement within five business
days of any request for consent shall constitute such consent);
(j) Incur, assume or pre-pay any indebtedness for borrowed money,
guarantee any indebtedness or obligation of another person, issue or sell
any debt securities or options, warrants, calls or other rights to acquire
any debt securities, enter into any "keep well" or other agreement to
maintain any financial statement condition or enter into any arrangement
having the economic effect of any of the foregoing other than (i) in
connection with the financing of ordinary course trade payables consistent
with past practice, (ii) pursuant to existing credit facilities in the
ordinary course of business, or (iii) as contemplated by the Merger
Agreement;
(k) Hire any employee, except replacements for former non-officer
employees, hired in the ordinary course of business consistent with past
practice;
(l) Adopt or amend any employee stock purchase or employee stock
option plan, or adopt or amend any material employee benefit plan, or enter
into any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable
"at will"), pay any special bonus or special remuneration to any director,
employee or consultant except pursuant to written agreements outstanding on
the date of the Merger Agreement and previously disclosed in writing to
Parent, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of any of its directors,
officers, employees or consultants other than normal periodic salary
increases for non-officer employees made in the ordinary course of
business, consistent with past practice, or change in any material respect
any management policies or procedures;
(m) Make any payments outside of the ordinary course of business in an
aggregate amount in excess of $250,000;
(n) Except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any
subsidiary thereof is a party or waive, release or assign any material
rights or claims thereunder;
(o) Enter into, amend or extend any contracts, agreements, or
obligations relating to the distribution, sale, license or marketing by
third parties of the Company's products or products licensed by the
Company, other than agreements, extensions or amendments that grant
non-exclusive rights to such third parties and provide for termination by
the Company for convenience on not more than 60 days' notice;
(p) Materially revalue any of its assets (other than the booking of
reserves in the ordinary course of business and consistent with past
practices) or, except as required by a change in law or in GAAP or the
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rules of the SEC, make any change in accounting methods, principles or
practices, including inventory accounting practices;
(q) Make any loans, advances or capital contributions to, or
investments in, any other person or entity, except for loans, advances,
capital contributions or investments between any wholly-owned subsidiary of
the Company and the Company or another wholly-owned subsidiary of the
Company and advances of business related expenses (including expenses
related to business travel) to employees in the ordinary course and
consistent with past practice;
(r) Authorize or make capital expenditures beyond those provided in
the Company's existing capital expenditure budget, or that are individually
in excess of $100,000 or in the aggregate in excess of $500,000 in any
calendar quarter;
(s) Materially accelerate or delay collection of any notes or accounts
receivable in advance of or beyond their regular due dates or the dates
when the same would have been collected in the ordinary course of business;
(t) Materially delay or accelerate payment of any account payable
beyond or in advance of its due date or the date such liability would have
been paid in the ordinary course of business;
(u) Settle or compromise any suits or claims or threatened suits or
claims for payments in an aggregate amount in excess of $500,000;
(v) Make any tax election not required by law or settle or compromise
any material tax liability;
(w) Cancel or terminate any material insurance policy naming it as a
beneficiary or a loss payable payee or permit any such policy to lapse (it
being understood that the Company may renew any insurance policy in effect
as of the date of the Merger Agreement);
(x) Increase the aggregate dollar value of inventory owned by
distributors in the first and second tiers of its distribution channel
(which has not been "sold through" to end-user customers and which such
distributors have the right to return) above the aggregate value of such
inventory at June 30, 1998;
(y) Begin shipment of any new products to customers, except for alpha
versions and not more than 50 beta versions of any product delivered to
customers solely for evaluation purposes; or
(z) Agree in writing or otherwise to take any of the actions described
in (a) through (y) above.
Source Code Escrow. Under the terms of the Merger Agreement, the Company
agreed to deposit into escrow (the "Source Code Escrow") with Brambles NSD,
Inc., or such other entity as is reasonably satisfactory to Parent and the
Company (the "Escrow Agent"), CDROMs containing true, correct and complete
copies of the source code, together with all relevant documentation, build
instructions, and any tools or libraries used in the build process that are not
commercially available in off-the-shelf or shrink wrap form, for each of its
currently shipping versions of products (including but not limited to versions
of products in the following product families: First Aid, UnInstaller, Oil
Change, Guard Dog and CSS Repair Engine for Workgroups) and versions of all
products currently under development (collectively, the "CyberMedia Source
Code"). Prior to the Expiration Date, the Source Code Escrow will be
periodically updated to include a complete and updated copy of all CyberMedia
Source Code. The CyberMedia Source Code shall be held in the Source Code Escrow
at the offices of the Escrow Agent until the date on which Purchaser has
accepted for payment and paid for Shares pursuant to the Offer (the "Release
Date"), at which time it shall be released to Parent or its representative
promptly upon request. In the event that, prior to the Release Date, the Merger
Agreement shall be terminated pursuant to its terms, the Source Code Escrow
shall terminate and the CyberMedia Source Code shall be returned to the Company.
Non-Solicitation. The Company has agreed in the Merger Agreement that from
and after the date of the Merger Agreement until the earlier of the Effective
Time or termination of the Merger Agreement pursuant its terms, the Company and
its subsidiaries will not, and they will direct their respective Representatives
(as defined below) not to, directly or indirectly, (A) solicit, initiate or
encourage the submission of any Alternative Proposal (as defined below) or (B)
participate in any discussions or negotiations regarding, or
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furnish to any person any non-public information with respect to, or take any
other action to facilitate the making of any proposal that constitutes or may
reasonably be expected to lead to, an Alternative Proposal. The Company has
agreed that it and its subsidiaries will immediately cease, and instruct their
respective Representatives to immediately cease, any and all activities,
discussions or negotiations with any parties conducted previously with respect
to any Alternative Proposal. The Company also agreed as promptly as practicable,
and in any event within 24 hours, to advise Parent orally and in writing of (i)
any Alternative Proposal or any request for non-public information which the
Company reasonably believes may lead to an Alternative Proposal, (ii) the
material terms and conditions of such information, request or Alternative
Proposal, and (iii) the identity of the person making any such information,
request or Alternative Proposal. The Company will keep Parent informed in all
material respects of the status and details (including material amendments) of
any such request or Alternative Proposal. For the purposes of the Merger
Agreement, an "Alternative Proposal" is defined as any inquiry, proposal or
offer from any person or Group (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) relating to any direct or indirect
acquisition or purchase of any product line or other material portion of the
assets of the Company and its subsidiaries taken as a whole (but excluding the
purchase from the Company of its products or used equipment in the ordinary
course of business), or more than a 20% interest in the total outstanding voting
securities of the Company or any of its subsidiaries, or any tender offer or
exchange offer that if consummated would result in any person or Group
beneficially owning 10% or more of the total outstanding voting securities of
the Company or any of its subsidiaries, or any merger, consolidation, business
combination, sale of substantially all the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries, other than the transactions contemplated by the Merger
Agreement. For the purposes of the Merger Agreement, "Representative" is defined
as the officers, directors or employees or any investment banker, attorney,
accountant or other advisor or representative retained by the Company or its
subsidiaries.
Subject to the other provisions of the Merger Agreement, from and after the
date of the Merger Agreement until the earlier of the Effective Time and
termination of the Merger Agreement pursuant to its terms, the Company has
agreed that neither the Company Board nor any committee thereof will (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Parent or Purchaser, their approval or recommendation to the
Company's stockholders of the Offer, the Merger Agreement or the Merger or (ii)
cause the Company to enter into any letter of intent, agreement in principal,
acquisition agreement or other similar agreement (an "Acquisition Agreement")
with respect to any Alternative Proposal. In addition, subject to the other
provisions of the Merger Agreement, from and after the date of the Merger
Agreement until the earlier of the Effective Time and termination of the Merger
Agreement pursuant to its terms, the Company has agreed that the Company and its
subsidiaries will not, and they will direct their Representatives not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any Alternative Proposal; provided, however, that
nothing in the Merger Agreement shall prohibit the Company Board from taking and
disclosing to the Company's stockholders a position with respect to a tender
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, if at any time prior to consummation of the
Offer, the Company Board reasonably determines in good faith, after consultation
with outside legal counsel, that it is necessary to do so in order to comply
with its fiduciary duties to the Company's stockholders under applicable law,
the Company Board may withdraw or modify its approval or recommendation of the
Offer, the Merger Agreement or the Merger, approve or recommend a Superior
Proposal (as defined below), or enter into an Acquisition Agreement with respect
to a Superior Proposal, provided that the Company shall have given Parent
written notice (a "Notice of Superior Proposal") at least two business days
prior to entering into any such Acquisition Agreement and at least two business
days prior to public disclosure by the Company Board of such withdrawal,
modification, approval or recommendation, advising Parent that the Company Board
has received a Superior Proposal, specifying the material terms and conditions
of the Superior Proposal and identifying the person making such Superior
Proposal. Any amendment to the price or material terms of a Superior Proposal
shall require an additional Notice of Superior Proposal and an additional two
business day period thereafter, to the extent permitted under applicable law,
prior to public disclosure by the Company Board of its recommendation with
respect thereto. For the purposes of the Merger Agreement, "Superior Proposal"
is
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defined as a bona fide offer made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 50% of the total outstanding voting securities of the Company or all
or substantially all the assets of the Company, which offer is otherwise on
terms which the Company Board determines in its good faith judgment (after
consultation with a financial advisor of nationally recognized reputation) to be
more favorable to the Company's stockholders from a financial point of view than
the Offer and the Merger, and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the Company Board is
capable of being obtained by such third party.
The Company also has agreed not to provide any non-public information to a
third party unless: (i) the Company provides such non-public information
pursuant to a nondisclosure agreement with terms regarding the protection of
confidential information at least as restrictive as such terms in the
Confidentiality Agreement; and (ii) such non-public information has been
previously or is contemporaneously delivered to Parent.
Public Announcements. Pursuant to the Merger Agreement, the Company, on the
one hand, and Parent and Purchaser, on the other hand, have agreed to attempt in
good faith to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the Merger Agreement, the
Offer, the Merger or the other transactions contemplated hereby, to provide to
the other party for review a copy of any such press release or statement, and
not to issue any such press release or make any such public statement prior to
attempting in good faith such consultation and review, unless required by
applicable law or any listing agreement with a securities exchange.
Indemnification. Pursuant to the terms of the Merger Agreement, all rights
to indemnification now existing in favor of any of the current or former
directors and officers of the Company (the "Indemnified Parties") as provided in
its Certificate of Incorporation or By-Laws, in each case as of the date of the
Merger Agreement, and in indemnification agreements between the Company and the
Indemnified Parties shall survive the Merger and shall continue in full force
and effect from and after consummation of the Offer in accordance with their
terms, as such terms exist on the date hereof. After the Effective Time, Parent
has agreed to cause the Surviving Corporation to honor all rights to
indemnification referred to in the preceding sentence.
Pursuant to the Merger Agreement, Parent has agreed to cause the Company,
and from and after the Effective Time, the Surviving Corporation, to maintain in
effect for not less than six years from the Effective Time the current policies
of directors' and officers' liability insurance maintained by the Company;
provided that the Surviving Corporation may substitute therefor other policies
not less advantageous (other than to a de minimus extent) to the beneficiaries
of the current policies, provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time; and provided, further, that the Surviving Corporation shall not
be required to pay an annual premium in excess of 150% of the last annual
premium paid by the Company prior to the date of the Merger Agreement. If the
Surviving Corporation is unable to obtain the insurance required by the Merger
Agreement for such maximum amount it is required to obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
Termination of Merger Agreement. The Merger Agreement provides grounds for
which it may be terminated, and the Merger abandoned, at any time prior to the
Effective Time, whether before or after approval by the stockholders of the
Company (with any termination by Parent also being an effective termination by
Purchaser). The Merger Agreement may be so terminated:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company, subject, following the consummation of
the Offer, to the concurrence of certain members of the Company Board who
are independent of Parent;
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(b) by either Parent or the Company if:
(i) the Offer is terminated, withdrawn or expires pursuant to its
terms without any Shares having been purchased thereunder; provided,
however, that neither Parent nor the Company may terminate the Merger
Agreement if such party is in material breach of the Merger Agreement,
including, in the case of Parent, if Parent or Purchaser is in material
violation of the terms of the Offer;
(ii) any court, administrative agency, commission, or other
governmental authority or instrumentality ("Governmental Entity") shall
have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Offer or the Merger, which order, decree,
ruling or other action is final and nonappealable; or
(iii) prior to the purchase of Shares pursuant to the Offer, the
Company Board has recommended, or the Company has entered into an
Acquisition Agreement with respect to, a Superior Proposal; provided,
however, that termination by the Company pursuant to this provision of
the Merger Agreement is conditioned upon concurrent payment by the
Company of the Termination Fee (as defined below) in accordance with the
terms of the Merger Agreement.
(c) by Parent prior to the purchase of Shares pursuant to the Offer
if:
(i) the Company shall have failed to include in the Schedule 14D-9
the recommendation of the Company Board that the stockholders of the
Company accept the Offer;
(ii) the Company Board or any committee thereof shall have (A)
withdrawn or modified (including but not limited to by amendment of the
Schedule 14D-9) in a manner adverse to Parent or Purchaser its approval
or recommendation of the Offer, the Merger Agreement or the Merger, (B)
approved or recommended, taken no position with respect to, or failed to
recommend against any Alternative Proposal, or (C) resolved to do any of
the foregoing;
(iii) the Company or any of its subsidiaries or any of their
respective Representatives participate in any discussions or
negotiations with or provide any non-public information to any third
party in breach of the non-solicitation provisions of the Merger
Agreement; or
(iv) the Company is in material breach of any of its covenants or
obligations under the Merger Agreement; provided that if such breach is
curable through the exercise of the Company's commercially reasonable
efforts, Parent may not terminate the Merger Agreement under this
provision of the Merger Agreement unless such breach is not cured prior
to September 30, 1998.
(d) by the Company prior to the purchase of Shares pursuant to the
Offer if:
(i) the Offer shall not have been commenced in accordance with its
terms or Parent or Purchaser shall have failed to purchase validly
tendered Shares in violation of the terms of the Offer within 10
business days after the expiration of the Offer; provided, however, that
the Company shall not be entitled to terminate the Merger Agreement
pursuant to this provision of the Merger Agreement if it is in material
breach of the Merger Agreement; or
(ii) Parent or Purchaser is in material breach of any of its
covenants or obligations under the Merger Agreement; provided that if
such breach is curable through exercise of Parent's or Purchaser's
commercially reasonable efforts, the Company may not terminate the
Merger Agreement under this provision of the Merger Agreement unless
such breach is not cured within 20 days after giving notice to Parent.
Fees and Expenses. The Merger Agreement provides that, except as described
below, whether or not the transactions contemplated by the Offer and the Merger
Agreement are consummated, all costs and expenses incurred in connection with
the transactions contemplated by the Offer and the Merger Agreement shall be
paid by the party incurring such expenses.
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The Merger Agreement also provides that the Company shall pay Parent a
termination fee of $4,000,000 (the "Termination Fee") under various
circumstances as follows.
The Company is required to pay Parent the Termination Fee concurrently with
termination of the Merger Agreement if the Company exercises its right to
terminate the Merger Agreement because the Company Board is recommending, or the
Company is entering into an Acquisition Agreement with respect to, a Superior
Proposal.
The Company is required to pay Parent the Termination Fee within one
business day following termination of the Merger Agreement, if Parent exercises
its right to terminate the Merger Agreement as a result of any of the following:
(i) the Company Board has recommended, or the Company has entered into
an Acquisition Agreement with respect to, a Superior Proposal;
(ii) the Company fails to include in the Schedule 14D-9 the
recommendation of the Company Board that the stockholders of the Company
accept the Offer;
(iii) the Company Board or any committee thereof (A) withdraws or
modifies (including but not limited to by amendment of the Schedule 14D-9)
in a manner adverse to Parent or Purchaser its approval or recommendation
of the Offer, the Merger Agreement or the Merger, (B) approves or
recommends, takes no position with respect to, or fails to recommend
against any Alternative Proposal, or (C) resolves to do any of the
foregoing; or
(iv) the Company or any of its subsidiaries or any of their respective
Representatives participate in any discussions or negotiations with or
provide any non-public information to any third party in breach of the
non-solicitation provisions of the Merger Agreement.
The Company is required to pay Parent the Termination Fee if the Merger
Agreement is terminated as a result of the mutual consent of the Company and
Parent, or if the Offer is terminated, withdrawn or expires pursuant to its
terms without any Shares having been purchased thereunder, or is terminated by
Parent due to material breach by the Company of any of its covenants or
obligations under the Merger Agreement which, if curable through the exercise of
the Company's commercially reasonable efforts, has not been cured prior to
September 30, 1998, and if at the time of any such termination there is pending
any offer by any person other than Parent or any affiliate of Parent to effect
an Acquisition (as defined below) and, within 12 months following such
termination, any person other than Parent or any affiliate of Parent effects an
Acquisition, or enters into an Acquisition Agreement with the Company or
commences a tender offer for an Acquisition and the transactions contemplated
thereby are subsequently consummated at any time. In such event, the Termination
Fee must be paid to Parent at or prior to the consummation of such Acquisition.
Finally, if the Merger Agreement is terminated as a result of the mutual
consent of the Company and Parent, or if the Offer is terminated, withdrawn or
expires pursuant to its terms without any Shares having been purchased
thereunder (other than a termination solely as a result of a failure to satisfy
the Minimum Condition, or a failure to satisfy the conditions specified in
section (iii)(a) or (b) above under "Conditions to the Offer"), or is terminated
by Parent due to material breach by the Company of any of its covenants or
obligations under the Merger Agreement which, if curable through the exercise of
the Company's commercially reasonable efforts, has not been cured prior to
September 30, 1998, and if at the time of any such termination no offer by any
person other than Parent or any affiliate of Parent to effect an Acquisition is
pending and, within six months following such termination, any person other than
Parent or any affiliate of Parent effects an Acquisition, or enters into an
Acquisition Agreement with the Company or commences a tender offer for an
Acquisition and the transactions contemplated thereby are subsequently
consummated at any time, the Company shall pay Parent at or prior to the
consummation of such Acquisition an amount equal to the lesser of (A) the
Termination Fee or (B) the amount, if any, by which the aggregate consideration
paid to the Company and/or its stockholders in such Acquisition exceeds
$126,944,000.
For the purposes of the Merger Agreement, an "Acquisition" is defined as
any merger, consolidation or other reorganization, any tender offer or other
transaction or series of related transactions involving the acquisition of
securities of the Company, or any sale or license of all or substantially all
the business or assets
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of the Company, unless the stockholders of the Company prior to such transaction
or series of related transactions retain following such transaction or series of
related transactions (in respect of their equity interest in the Company prior
thereto) more than 50% of the voting equity securities of the surviving or
successor corporation to the business of the Company.
If the Company fails promptly to pay the Termination Fee or other amount
due under these provisions, and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for such
amounts, the Company shall pay to Parent its reasonable costs and expenses
(including attorneys' fees and expenses) in connection with such suit, together
with interest on such amounts at the prime rate of Bank of America, NT&SA, in
effect on the date such payment was required to be made.
The Termination Fee shall not be deemed to be liquidated damages, and the
right to the payment of the Termination Fee shall be in addition to (and not a
maximum payment in respect of) any other damages or remedies at law or in equity
to which Parent or Purchaser may be entitled as a result of the willful
violation or willful breach of any term or provision of the Merger Agreement or
any Support Agreement, as described below.
The Support Agreements.
Concurrently with the execution of the Merger Agreement, Parent entered
into the Support Agreements with Kanwal Rekhi, James R. Tolonen, Suhas Patil,
Ronald Posner, Robert Davis and Kenneth Kucera. In the aggregate, such
stockholders owned approximately 2,787,116 Shares representing approximately
18.0% of the outstanding Shares on a fully diluted basis (approximately 20.9% of
the currently outstanding Shares) as of July 28, 1998. The following is a
summary of the material terms of the Support Agreements. This summary is not a
complete description of the terms and conditions of the Support Agreements and
is qualified in its entirety by reference to the full text of the Support
Agreements which is incorporated herein by reference and a copy of which has
been filed as an exhibit to this Schedule 14D-9.
Pursuant to the Support Agreements, each of these stockholders agreed to
tender and not withdraw his Shares pursuant to the Offer. Each of such
stockholders has also agreed, for so long as the Support Agreement is in effect,
at any meeting of the stockholders of the Company, however called, to vote his
Shares in favor of the Merger, against any action or agreement that would result
in a breach of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement, and against any action
or agreement that would impede, interfere with, delay, postpone or attempt to
discourage the Merger or the Offer. Each of such stockholders also granted
representatives of Parent an irrevocable proxy to vote his Shares in favor of
the Merger and other transactions contemplated by the Merger Agreement, against
any Acquisition Proposal.
In addition, each of such stockholders agreed not to (i) transfer any or
all of his Shares, (ii) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of his Shares, (iii)
grant any proxy, power-of-attorney or other authorization in or with respect to
his Shares, (iv) deposit his Shares into a voting trust or enter into a voting
agreement or arrangement with respect to his Shares or (v) take any other action
that would in any way restrict, limit or interfere with the performance of his
obligations under the Support Agreements or the Merger Agreement or which would
make any representation or warranty of such stockholder under the Support
Agreement untrue or incorrect.
The agreements and proxy contained in each Support Agreement will terminate
on the earlier of payment for the Shares pursuant to the Offer and the
termination of the Merger Agreement in accordance with its terms.
The Company Option Agreement
Concurrently with the execution of the Merger Agreement, the Company and
Parent entered into the Company Option Agreement. The following is a summary of
the material terms of the Company Option Agreement. This summary is not a
complete description of the terms and conditions of the Company Option Agreement
and is qualified in its entirety by reference to the full text of the Company
Option Agreement,
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which is incorporated herein by reference, and a copy of which has been filed as
an exhibit to this Schedule 14D-9.
Pursuant to the Company Option Agreement, the Company granted Parent the
option (the "Company Option")to acquire, under certain circumstances, a number
of Shares equal to 19.9% of the total number of Shares issued and outstanding as
of July 28, 1998 less the number of Shares issuable upon full conversion of the
Convertible Note, and adjusted thereafter to reflect changes in the Company's
capitalization occurring after the date of the Merger Agreement (provided that
the number of Shares issuable upon exercise of the Company Option shall be
reduced to the extent necessary so that the aggregate number of Shares issuable
under the Company Option and upon conversion of the Convertible Note shall not,
upon such issuance, constitute more than 19.9% of the total number of Shares
issued and outstanding). The per share purchase price of Shares purchased
pursuant to exercise of the Company Option is the Offer Price, payable in cash.
The Company Option is exercisable, in whole or in part, at any time or from
time to time after the occurrence of an event (a "Trigger Event") which causes
the Termination Fee to become payable to Parent by the Company under the Merger
Agreement. The Company Option terminates upon the earlier of the following: (i)
the Effective Time of the Merger, (ii) the termination of the Merger Agreement
under circumstances which do not constitute a Trigger Event and following which
a Trigger Event cannot occur, (iii) six months after Parent receives written
notice from the Company of the occurrence of a Trigger Event, (iv) 12 months
following the termination of the Merger Agreement if during such 12-month period
no Trigger Event has occurred, and no transaction the consummation of which
would give rise to a Trigger Event, is pending, and (v) the date following 12
months after the termination of the Merger Agreement when no transaction entered
into or commenced prior to that date that, if consummated, would have given rise
to a Trigger Event, remains pending. The exercise period is automatically
extended if exercise of the Company Option is prohibited or restrained for
certain legal reasons. In addition, the Company Option cannot be exercised by
Parent if Parent is in material breach of its material representations,
warranties, covenants or agreements in the Company Option Agreement or the
Merger Agreement.
The Company's obligation to issue Shares under the Company Option is
subject to a number of conditions, including expiration of all applicable
waiting periods under the Hart-Scott-Rodino Act, the absence of any injunction
or order, receipt of any required governmental consents, approvals, orders,
authorizations and permits.
At any time when the Company Option is exercisable, Parent has the right
(the "Put Option") to require the Company to repurchase the Company Option,
either in whole or in part, at a price equal to (i) the difference between the
Market Price (as defined below) and the exercise price, multiplied by (ii) the
number of Shares subject to purchase under the Company Option or the portion
thereof specified in the repurchase notice. "Market Price" is defined as the
average per share closing sale price of the Shares on the Nasdaq National Market
for the 10 trading days immediately preceding the date of the repurchase notice.
In the event that Parent (and/or any of its affiliates) receives Net
Proceeds (as defined below) which, combined with any Termination Fee paid to
Parent pursuant to the Merger Agreement and any payment made to Parent (and/or
any of its affiliates) pursuant to Parent's exercise of the Put Option (or upon
any other sale of the Company Option) exceed $5,500,000, Parent is required to
promptly remit to the Company an amount equal to all Net Proceeds in excess of
such amount. "Net Proceeds" is defined as the aggregate proceeds from the sale
or other disposition of Shares acquired by Parent (and/or any of its affiliates)
upon exercise of the Company Option (plus any securities or other assets issued
to Parent (and/or any of its affiliates) in exchange for or as dividends upon
such Shares and any cash dividends received by Parent (and/or any of its
affiliates) with respect to such Shares) less the exercise price multiplied by
the number of Shares included in such disposition.
Prior to July 28, 2003, the Company Option Agreement requires Parent to
vote all Shares acquired upon exercise of the Company Option in the same manner
and in the same proportion as all other Shares are voted on each matter
submitted to a stockholder vote. In addition, the Company Option Agreement
requires Parent to execute written consents with respect to such Shares in the
same proportion as written consents are executed by other holders of Shares.
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Under the Company Option Agreement, Parent's right to sell, assign, pledge
or otherwise dispose of or transfer Shares acquired upon exercise of the Company
Option is subject to certain restrictions and first-refusal rights in favor of
the Company.
In addition, the Company Option Agreement gives Parent certain rights to
have the Shares acquired upon exercise of the Company Option registered under
the Securities Act for sale in a public offering. The registration rights take
effect after the termination of the Merger Agreement and are subject to certain
conditions and limitations. In lieu of registration, the Company Option
Agreement gives the Company the option to agree to purchase, for cash, all or
part of the Shares covered by the registration request, at a price equal to at
least 80% of the average per share closing sale price of the Shares on the
Nasdaq National Market for the 20 trading days immediately preceding the date
Parent gives notice. The Company Option Agreement allows Parent to demand a
total of two registrations, and allows the Company to defer the requested
registrations for prescribed periods of time under certain circumstances.
The Loan Agreement
On July 28, 1998, immediately prior to the execution of the Merger
Agreement, the Company and Parent entered into a Note Purchase and Security
Agreement (the "Loan Agreement") pursuant to which Parent agreed to loan the
Company $10,000,000 in principal amount (the outstanding principal balance and
any accrued but unpaid interest constituting the "Loan Amount"). The Loan Amount
is evidenced by a Secured Subordinated Convertible Promissory Note (the
"Convertible Note") issued concurrently with the execution of the Loan
Agreement. The following is a summary of the material terms of the Loan
Agreement and the Convertible Note. This summary is not a complete description
of the terms and conditions of the Loan Agreement or Convertible Note, and is
qualified in its entirety by reference to the full text of such agreements,
which are incorporated herein by reference and copies of which have been filed
as an exhibit to this Schedule 14D-9.
Conversion Right. Parent has the right, in its sole discretion, at any time
and from time to time to elect to convert all or any part of the Loan Amount
into the number of Shares (the "Conversion Shares") determined by dividing the
total Loan Amount being converted by the Conversion Price. The Conversion Price
means $6.66 per Share, subject to adjustment for stock splits, subdivisions and
reverse stock splits.
Interest. The Convertible Note bears interest at an annual rate equal to
LIBOR (3-month) in effect on the first day of each calendar quarter, plus two
percent. Upon an "Event of Default" (as defined in the Convertible Note and
described below), interest will accrue at an annual rate equal to two percent
plus the rate otherwise in effect. Interest payments are due on the first day of
each calendar quarter, beginning on October 1, 1998, and upon maturity or any
prepayment of the outstanding principal amount.
Repayment; Acquisition. The Loan Amount is payable in full on July 28,
2000. Unless and until the Merger Agreement shall have been terminated in
accordance with its terms, the Company may not prepay any principal or interest
under the Convertible Note without the prior written consent of Parent.
Thereafter, the Company shall have the right at any time and from time to time,
upon 10 business days' prior written notice to Parent (during which notice
period Parent will remain entitled to elect to convert all or part of the Loan
Amount), to prepay the Loan Amount, in whole or in part, without payment of any
premium or penalty. The Loan Amount is due and payable (without any prepayment
penalty), upon either (i) the closing of the sale or transfer of all or
substantially all of the Company's assets; or (ii) the closing of a merger or
consolidation of the Company or other transaction or series of related
transactions in which the stockholders immediately prior to such transaction or
transactions do not own a majority of the voting securities of the Company or
the surviving corporation as applicable.
Subordination. The Convertible Note is subordinated, as to both security
interest and right of payment, to up to $6 million of senior debt which the
Company may obtain from banks, insurance companies, lease financing
institutions, or other institutional lenders (the "Senior Debt").
Security Interests. As collateral security for the prompt and complete
payment and performance of the Company's obligations under the Convertible Note,
the Company granted Parent a continuing security
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interest in all of presently existing and hereafter acquired or arising assets
of the Company, including the Company's intangible property and intellectual
property rights (the "Collateral").
Covenants. In connection with the Loan Agreement, the Company covenanted
that it:
(a) will not transfer or otherwise encumber any interest in the
Collateral, except for certain permitted liens and liens that may be
granted in favor of the holders of Senior Debt and except for non-
exclusive licenses under its patents, copyrights and other intellectual
property rights granted by the Company in the ordinary course of business;
(b) will deliver to Parent a quarterly report listing any applications
or registrations that it has made, filed or acquired in respect of any
patents, copyrights or trademarks and the status of any outstanding
applications or registrations;
(c) will protect, defend and maintain the validity and enforceability
of its material patents and copyrights, use its best efforts to detect
infringements of its patents and copyrights and promptly advise Parent of
infringements detected, and not allow any material patents or copyrights to
be abandoned, forfeited or dedicated to the public without the written
consent of Parent, which shall not be unreasonably withheld;
(d) will within 30 days of the date of the Loan Agreement register or
cause to be registered (to the extent not already registered) with the
United States Copyright Office, the copyrights associated with the
currently shipping versions of its "First Aid" software products, and
register with the United States Copyright Office once each calendar quarter
those additional copyrights developed, authored or acquired by the Company
from time to time for new releases and of each then shipping version of its
First Aid and Uninstaller software; and
(e) will not create, incur, assume or suffer to exist any lien with
respect to any of its property or assign or otherwise convey any right to
receive income therefrom, or enter into any agreement that would impair or
conflict with its obligations under the Loan Agreement and Convertible Note
without Parent's prior written consent, which consent shall not be
unreasonably withheld, and will not permit the inclusion in any contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in the Company's rights and
interests in any property included within the definition of the Collateral
acquired under such contracts, except for permitted liens and the granting
of liens in favor of the holders of Senior Debt, and except that certain
contracts may contain anti-assignment provisions that could in effect
prohibit the creation of a security interest in such contracts if the
Company is required, in its commercially reasonable judgment, to accept
such provisions.
Events of Default. The occurrence of any of the following would constitute
an event of default under the Loan Agreement and Convertible Note:
(a) The Company's breach of the obligation to pay any amount due
within 10 days of the date of written notice from Purchaser to the Company
of such breach;
(b) The Company's failure to perform, keep or observe any of its
covenants, conditions, promises, agreements or obligations under any
agreement with any third person or entity, after the expiration of any
applicable grace period under such agreement, or after any period of
forbearance acknowledged in writing by the other party to such agreement,
if such failure has a material adverse effect on the Company's assets,
operations or financial condition;
(c) The Company's institution of proceedings against itself, or the
Company's filing of a petition or answer or consent seeking reorganization
or release, under the federal Bankruptcy Code, or any other applicable
federal or state law relating to creditors' rights and remedies, or the
Company's consent to the filing of any such petition or the appointment of
a receiver, liquidation, assignee, trustee or other similar official of the
Company or of any substantial part of its property, or the Company's making
of an assignment for the benefit of creditors, or the taking of corporate
action in furtherance of such action;
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(d) the creation (whether voluntary or involuntary) of, or any attempt
to create, any lien or encumbrance upon any of the Collateral, other than
permitted liens and liens in favor of the holders of Senior Debt, or the
making or any attempt to make any levy, seizure or attachment thereof and
such lien, encumbrance, levy, seizure or attachment has not been removed,
discharged or rescinded within 10 days after the Company is notified of or
learns of such lien, encumbrance, levy, seizure or attachment;
(e) the occurrence and continuance of any default under any lease or
agreement for borrowed money that gives the lessor or the creditor of such
indebtedness, as applicable, the right to accelerate the lease payments or
the indebtedness, as applicable, in an amount in excess of $1,000,000 or
the right to exercise any rights or remedies with respect to any of the
Collateral;
(f) the entry of any judgment or order against the Company in an
amount in excess of $1,000,000 which remains unsatisfied or undischarged
and in effect for 30 days without a stay of enforcement or execution; or
(g) The Company's breach of any warranty or agreement made by the
Company in the Loan Agreement and, as to any breach that is capable of
cure, the Company fails to cure such breach within 20 days of notice from
Purchaser of the occurrence of such breach.
Remedies upon Event of Default. Upon an Event of Default, Parent will have
all the rights and remedies of a secured creditor under California law,
including the right to foreclose on the Collateral, to require the Company to
assemble the Collateral and any tangible property in which Parent has a security
interest and to make it available to Parent at a place designated by Parent.
Parent will have a nonexclusive, royalty-free license to use the copyrights,
patents and trademarks of the Company to the extent reasonably necessary to
permit Parent to exercise its rights and remedies upon the occurrence of an
Event of Default. The Company has agreed to pay any expenses (including
reasonable attorneys' fees) incurred by Parent in connection with the exercise
of any of Parent's rights upon default, including without limitation any expense
incurred in disposing of the Collateral.
Registration Rights. Parent has the right to demand that the Company
register Conversion Shares under the Securities Act. Parent may demand up to
four registrations, at the Company's expense, for resale in a public offering if
the Company is eligible to register shares on Form S-3 (or two registrations if
it is not so eligible). The right to demand registration is subject to various
conditions and limitations, including the right of the Company to defer such
registration for prescribed periods of time under certain circumstances.
Confidentiality. In connection with the Company granting Parent and its
representatives access to certain confidential information for purposes of
evaluating the contemplated transaction, Parent and the Company executed a
Confidentiality Agreement, dated as of June 9, 1998 (the "Confidentiality
Agreement"). Among other things, Parent has agreed to keep confidential all
confidential proprietary information furnished to it by the Company relating to
the Company (the "Confidential Information"), subject to certain exceptions and
to use the Confidential Information solely in evaluating possible participation
certain transactions relating to the Company. Additionally, Parent has agreed
not to solicit or offer employment to any employees of the Company for a period
of 18 months from the date of the Confidentiality Agreement. In the event that
the contemplated transaction is not consummated, Parent has agreed to destroy or
return all Confidential Information of the Company upon the Company's request.
Indemnification
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent such
exemption from liability is not permitted by the DGCL.
The Company's Bylaws provide that the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director or officer of the
Company, or that such director or officer is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
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partnership, joint venture trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company has previously entered into indemnification agreements with
each of its directors and officers. The indemnification agreements generally
provide: (i) for indemnification to the fullest extent permitted by law if an
indemnitee was or is or becomes a participant in, or is threatened to be made a
participant in, any threatened, pending or completed action, suit, proceeding or
alternative dispute resolution mechanism, or any hearing, inquiry or
investigation that the indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other by reason of (or arising in part out of) any event or occurrence related
to the fact that the indemnitee is or was a director or officer of the Company,
or any subsidiary of the Company, or is or was serving at the request of the
Company as a director or officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of the indemnitee while serving in such
capacity against any and all expenses (including attorneys' fees and all other
costs, expenses and obligations incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any such action, suit,
proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation, judgments, fines, penalties and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) of the claim and (ii) for advancement of all expenses
incurred by the indemnitee.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Company Board.
The Company Board has unanimously (a) determined that the Merger Agreement
and the transactions contemplated thereby, including each of the Offer and the
Merger, are fair to and in the best interests of the holders of the Shares, (b)
approved and adopted the Merger Agreement and the transactions contemplated
thereby, and (c) resolved to recommend that the stockholders of the Company
accept the Offer and approve and adopt the Merger Agreement and approve the
transactions contemplated thereby.
(b) Background of the Offer; Reasons for the Recommendation.
Background. On February 20, 1998, William L. Larson, the Chief Executive
Officer and Chairman of the Board of Parent contacted Kanwal Rekhi, currently
the Chief Executive Officer and Chairman of the Board of the Company, to learn
about the Company generally. During the course of the discussion, Mr. Larson
expressed interest in exploring a possible relationship between Parent and the
Company. Mr. Rekhi indicated to Mr. Larson that although the Company was focused
on executing on its business plan, Mr. Rekhi would discuss the matter with the
Company Board.
On March 2, 1998, at a meeting of the Company Board, the Company Board
discussed the Company's capital needs. The Company Board determined that the
Company should initiate discussions with investment bankers regarding
alternatives available for raising capital, pursuing corporate partnerships or
identifying appropriate parties with whom a business combination would be
mutually beneficial. The Company Board authorized management and Mr. Rekhi to
initiate such discussions. Mr. Rekhi also informed the Company Board of his
February 20 discussion with Mr. Larson regarding interest by Parent in exploring
a possible relationship with the Company. The Company Board authorized Mr. Rekhi
to pursue discussions further and to determine the extent of Parent's interest.
On March 5, 1998, Mr. Larson met with Mr. Rekhi again to further discuss a
possible relationship between Parent and the Company.
On March 31, 1998, the Company signed an engagement letter with Hambrecht &
Quist LLC ("H&Q") to provide assistance in securing a private placement of the
Company's securities or to advise the Company with respect to opportunities
involving the sale of all or part of the Company.
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On April 22, 1998, a meeting of the Company Board was held during which the
Company Board discussed the need to seek investment in the Company. H&Q gave a
presentation to the Company Board regarding potential investors interested in
participating in a preferred stock financing of the Company and discussed
various transaction structures. After the H&Q presentation, the Company Board
discussed its investment needs and alternatives.
On May 15, 1998, H&Q provided an update to the Company Board regarding
potential equity private placement transactions.
On June 9, 1998, Mr. Larson and Mr. Rekhi again discussed the possibility
of a relationship between Parent and the Company, and Parent and Company entered
into the Confidentiality Agreement under which Parent was furnished with certain
financial and business information concerning the Company.
On June 10, 1998, a meeting of the Company Board was held during which the
Company Board discussed various strategic alternatives for the Company.
Representatives from H&Q were present and discussed with the Company Board
several private placement transaction structures and their advantages and
disadvantages. Also at this meeting, the Company Board authorized and directed
H&Q to investigate the interest of other third parties in acquiring the Company.
During the period from June 9 until June 21, 1998, representatives of the
Company and Parent held various discussions and meetings concerning their
respective businesses and the potential framework of an acquisition of the
Company by Parent.
In the morning of July 10, 1998, representatives of Parent, the Company and
H&Q held a meeting to discuss a time frame for a potential acquisition of the
Company by Parent, the need for completing an acquisition quickly, the Company's
capital needs, the status of litigation involving the Company, possible
valuations of the Company, and the extent of legal financial and technical
review of the Company that would be required by Parent. Mr. Rekhi indicated to
Mr. Larson that the Company was then currently pursuing a potential private
placement financing of the Company, and because the Company would be required to
suspend its financing activities if an acquisition proposal from Parent were to
be approved by the Company Board, the Company would require a financing
arrangement with Parent.
On July 10, 1998, Mr. Rekhi informed the Company Board of the discussions
with Parent's representatives earlier that day. The Company Board discussed the
framework of Parent's proposals concerning a possible transaction. The Company
Board indicated that a substantial risk would be involved if attempts to secure
financing were suspended while pursuing a possible acquisition with Parent, and
that therefore, prior to accepting any acquisition proposal, the Company would
require Parent to provide financing to the Company. The Company Board instructed
management to continue negotiations with Parent.
On July 13, 1998, Parent's legal counsel delivered to the Company's legal
counsel an outline of a potential transaction proposing (a) an all cash tender
offer by a subsidiary of Parent for all of the outstanding shares of the Company
with a subsequent cash-out merger, and (b) a convertible debt financing pursuant
to which Parent would loan $10 million to the Company under to a convertible
promissory note. Representatives of Parent and the Company, together with their
respective legal counsel and H&Q, held telephonic meetings on July 13, 1998, to
discuss the proposal.
On July 14, 1998, the Company Board held a meeting to discuss Parent's
acquisition and financing proposals. Participating in the meeting were
representatives of H&Q, as well as the Company's legal counsel. The principal
terms of the proposed transaction were reviewed and discussed. The Company Board
also discussed the possibility of a business combination with other third
parties, and representatives of H&Q discussed their efforts in investigating
interest by potential investors and acquirors. The Company Board instructed
management to discuss concerns the Company Board had regarding the proposals
with representatives of Parent.
On July 15, 1998, representatives of Parent and the Company, together with
their respective legal advisors and H&Q held a further telephonic meeting to
discuss Parent's proposals.
On July 16, 1998, Parent's legal counsel delivered a revised proposal
reflecting certain changes discussed during the July 13 meeting.
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From July 15 to July 28, representatives of the Company, H&Q, and the
Company's legal counsel held discussions with representatives of Parent and
Parent's legal counsel to negotiate various aspects of the acquisition and
financing proposals. During this period the Company's management kept members of
the Company Board informed as to these discussions. In addition, from time to
time from July 18th through July 23rd, Parent's legal counsel, accountants and
representatives of Parent conducted legal, financial and technical reviews of
the Company.
On July 22, 1998, the Company Board held a meeting during which the
Company's legal counsel reviewed for the Company Board its fiduciary duties in
the context of a sale of the Company and reviewed with management the status of
negotiations of the terms of the proposed transaction. Representatives of H&Q
provided an analysis of the proposed transaction including an overview of the
financial condition of the Company, recent stock price performance and various
analyses for determining Company's valuation. The Company's management also
reviewed for the Company Board the Company's financial and operating history
(including the decline in revenues over the past quarter and management's
estimates for future periods), discussions relating to potential strategic
partnerships, discussions regarding potential private placements of the
Company's securities, the nature and strength of competing companies, industry
developments and comparable transactions. The Company Board discussed the
continuing need for financing. The Company Board then discussed the open issues
remaining to be resolved with respect to the proposed acquisition and financing
proposals from Parent and directed management to continue negotiations with
Parent.
On July 24, 1998, representatives of the Company met with potential
investors interested in a private placement financing of the Company.
On July 27, 1998, the Company Board met and reviewed and discussed the
proposed acquisition and financing transactions with Parent. At the meeting, the
Company's legal counsel gave a presentation to the Board on the terms of the
Merger Agreement and related documents, the structure of the Offer and the
Merger, the terms of the Loan Agreement and Note and the Board's fiduciary
duties to stockholders. The Company Board received an oral opinion from H&Q at
the meeting that, as of such date, the consideration to be received by the
holders of Shares pursuant to the Offer and the Merger as contemplated in the
Merger Agreement was fair from a financial point of view to such holders. This
oral opinion was subsequently confirmed by delivery of the written opinion of
H&Q, dated July 28, 1998. The Company Board members discussed the terms of the
proposed acquisition and financing transactions with its advisors and among
themselves. Following this discussion, the Company Board unanimously (a)
determined that the Merger Agreement and the transactions contemplated thereby,
including each of the Offer and the Merger, are fair to and in the best
interests of the holders of the Shares, (b) approved and adopted the Merger
Agreement and the transactions contemplated thereby, and (c) resolved to
recommend that the stockholders of the Company accept the Offer and approve and
adopt the Merger Agreement and approve the transactions contemplated thereby.
On the morning of July 28, 1998, Parent and Company executed the Loan
Agreement and the Company executed the Convertible Note. Subsequently, Parent
and the Company executed the Merger Agreement and the Stock Option Agreement and
simultaneously, Parent and certain stockholders of the Company executed the
Support Agreements.
Factors Considered by the Board of Directors. In approving the Merger
Agreement and the transactions contemplated thereby, and recommending that all
stockholders tender their Shares pursuant to the Offer, the Company Board
considered a number of factors, including:
(1) the financial and other terms of the Offer, the Merger Agreement,
the Loan Agreement, the Convertible Note and the related transaction
agreements;
(2) the presentation of H&Q and H&Q's opinion to the effect that, as
of the date of its opinion and based upon and subject to certain matters
stated therein, the $9.50 per Share cash consideration to be received by
the holders of Shares pursuant to the Offer and the Merger was fair to the
stockholders of the
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Company, from a financial point of view (the "Fairness Opinion"). THE FULL
TEXT OF H&Q'S WRITTEN FAIRNESS OPINION IS FILED AS EXHIBIT 14 TO THIS
SCHEDULE 14D-9 AND IS ALSO ATTACHED HERETO AS ANNEX A. STOCKHOLDERS ARE
URGED TO READ SUCH OPINION IN ITS ENTIRETY.
(3) that Parent was willing to enter into a financing arrangement with
the Company, which financing was not contingent upon the successful
consummation of the Offer or the Merger;
(4) that the $9.50 per share tender offer price represents a premium
of approximately 20% over the closing price of the Company's Common Stock
on the Nasdaq National Market System ("Nasdaq") on July 27, 1998, the last
full trading day prior to the public announcement of the execution of the
Merger Agreement;
(5) the history of the price of the Shares on Nasdaq over the last 12
months;
(6) the view of the Company Board, based in part upon the
presentations of management and H&Q, regarding the likelihood of a superior
offer arising;
(7) the Company's existing competitive and market position, including
the Company's ability to effectively compete with companies having
significantly greater financial resources than the Company;
(8) the Company's long-term and short-term capital needs, especially
in light of the Company's competitive and market position as described
above;
(9) the provisions of the Merger Agreement and the Company Option
Agreement, including the provisions allowing the Company to respond to
certain unsolicited inquiries concerning an acquisition of the Company, and
the provisions which permit the Company to terminate the Merger Agreement
upon payment to Parent of a break-up fee under certain circumstances;
(10) the fact that Parent's and Purchaser's obligations under the
Offer were not subject to any financing condition;
(11) Parent's financial condition and ability to cause Purchaser to
meet its obligations under the Merger Agreement;
(12) the alternatives available to the Company in light of the
consideration proposed to be paid for the Shares pursuant to the Offer and
the Merger Agreement, including continuing to maintain the Company as an
independent company and not engaging in any extraordinary transaction;
(13) the failure of any other potential bidder to submit a proposal
having terms more favorable than the terms proposed by Parent;
(14) legal matters relating to the Offer and the Merger Agreement,
including the review provided for under the Hart-Scott-Rodino Anti-Trust
Improvements Act with respect to the antitrust implications of the Offer
and the terms of the Offer and the Merger Agreement related thereto;
(15) the willingness of the directors and members of management of the
Company to enter into the Support Agreements, pursuant to which, among
other things, such persons agreed to tender the Shares owned by them for
purchase by the Purchaser pursuant to the Offer;
(16) the familiarity of the Company Board with the business, results
of operations, properties and financial condition of the Company and the
nature of the industry in which it operates; and
(17) the discussions held by the Company with other companies
regarding potential business combination transactions or financings with
the Company.
The foregoing discussion of the information and factors considered and
given weight by the Company Board is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the
Merger Agreement and the Offer, the Company Board did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Company Board may have given different weights to different
factors.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained H&Q in connection with the Offer and the Merger.
Pursuant to a letter agreement, dated March 31, 1998, the Company is required to
pay H&Q, upon delivery of the Fairness Opinion, a fee, payable in cash, of
$250,000, which amount will be credited against any compensation otherwise
payable by the Company to H&Q upon the consummation of a sale of the Company.
Upon consummation of a sale of the Company, including a sale pursuant to the
transactions contemplated by the Merger Agreement, the Company has agreed to pay
H&Q a fee, payable in cash on closing, of 1.375% of all consideration received
by the Company. In addition to the foregoing compensation, the Company has
agreed to indemnify H&Q against certain liabilities and expenses arising out of
the engagement and the transactions in connection therewith, including certain
liabilities under the federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares presently intend to tender
such Shares to Purchaser pursuant to the Offer. See "Item 3 -- Support
Agreements."
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Company Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Short Form Merger. Under the DGCL, if Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the outstanding shares of Common Stock,
Purchaser will be able to effect the Merger after consummation of the Offer
without a vote of the Company's stockholders. However, if Purchaser does not
acquire at least 90% of the outstanding Shares of Common Stock pursuant to the
Offer or otherwise and a vote of the Company's stockholders is required under
Delaware Law, a significantly longer period of time will be required to effect
the Merger.
Pending Litigation. On or about July 28, 1998, an individual claiming to be
a stockholder of the Company filed a Class Action Complaint alleging, among
other things, a breach of fiduciary duties by the Company Board in approving the
Merger Agreement and naming the members of the Company Board, the Company and
Parent as defendants. The Complaint seeks an injunction restraining the
consummation of the Offer and the Merger and unspecified compensatory damages.
The Company believes the Complaint is without merit and intends to vigorously
defend against it. A copy of the Complaint is filed as Exhibit 17 to this
Schedule.
23
26
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1 Agreement and Plan of Merger, dated July 28, 1998, by and
among Networks Associates, Inc., Cyclone Acquisition Corp.
and CyberMedia, Inc., including Conditions to the Offer.
2 Stock Option Agreement, dated July 28, 1998, by and between
Networks Associates, Inc., and CyberMedia, Inc.
3 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kanwal Rekhi.
4 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and James R. Tolonen.
5 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Suhas Patil.
6 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Ronald S. Posner.
7 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Robert Davis.
8 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kenneth Kucera.
9 Note Purchase and Security Agreement, made as of July 28,
1998, by and among CyberMedia, Inc. and Networks Associates,
Inc.
10 Secured Subordinated Convertible Promissory Note, dated July
28, 1998, made by CyberMedia, Inc. for the benefit of
Networks Associates, Inc.
11 Executive Employment Policy
12 Letter to Stockholders of CyberMedia, Inc., dated August 3,
1998.
13 Fairness Opinion of Hambrecht & Quist LLC, dated July 28,
1998.
14 Confidentiality Agreement, dated June 9, 1998, by and
between Networks Associates, Inc. and CyberMedia, Inc.
15 Form of Indemnification Agreement and provisions regarding
indemnification of directors and officers from the Company's
Certificate of Incorporation and Bylaws.
16 Pages 6-11 of the Proxy Statement, dated May 6, 1998, for
the Annual Stockholder meeting on June 10, 1998.
17 Class Action Complaint filed by Stanley Schneider in the
Court of Chancery in the State of Delaware, dated July 28,
1998.
24
27
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
By: /s/ Kanwal Rekhi
--------------------------------------
Kanwal Rekhi
Chief Executive Officer and
Chairman of the Board
Dated: August 3, 1998
25
28
ANNEX A
[HAMBRECHT & QUIST LLC LETTERHEAD]
July 28, 1998
Confidential
The Board of Directors
CyberMedia, Inc.
2850 Ocean Park Blvd.
Santa Monica, CA 90405
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the "Common
Stock") of CyberMedia, Inc. ("CyberMedia" or the "Company") of the consideration
to be received by such shareholders in connection with a proposed transaction as
set forth below.
We understand that CyberMedia, Network Associates, Inc. ("Network
Associates") and Cyclone Acquisition Corp. ("Merger Sub"), a wholly owned
subsidiary of Network Associates, propose to enter into an Agreement and Plan of
Merger (the "Agreement") dated as of July 28, 1998. The terms of the Agreement
provide, among other things, that (i) Merger Sub will promptly commence a tender
offer (the "Offer") to purchase for cash all of the outstanding shares of Common
Stock at a purchase price of $9.50 per share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Agreement and certain
ancillary documents to be filed with the Securities and Exchange Commission; and
(ii) the Merger Sub will subsequently be merged (the "Merger") with and into the
Company in a transaction which will provide the remaining holders of shares of
Common Stock (other than Network Associates, CyberMedia, the Merger Sub or their
respective subsidiaries, and holders who have perfected their appraisal rights,
if any, under Delaware law) with $9.50 per share in cash. The Offer and the
Merger constitute the "Proposed Transaction".
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of CyberMedia in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
In the past, we have provided investment banking and other financial
advisory services to CyberMedia and have received fees for rendering these
services. In particular, Hambrecht & Quist acted as lead managing underwriter in
the Company's initial public offering in 1996. In the ordinary course of
business, Hambrecht & Quist acts as a market maker and broker in the publicly
traded securities of CyberMedia and receives customary compensation in
connection therewith, and also provides research coverage for CyberMedia. In the
ordinary course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of CyberMedia for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Hambrecht & Quist may in the future provide additional
investment banking or other financial advisory services to Network Associates.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements
of Network Associates for recent years and interim periods to date and
certain other relevant financial and operating data of Network Associates
made available to us from published sources;
(ii) reviewed the publicly available consolidated financial statements
of CyberMedia for recent years and interim periods to date and certain
other relevant financial and operating data of CyberMedia made available to
us from published sources and from the internal records of CyberMedia;
A-1
29
(iii) reviewed certain internal financial and operating information,
including certain projections, relating to CyberMedia prepared by the
management of CyberMedia;
(iv) discussed the business, financial condition and prospects of
CyberMedia with certain of its officers;
(v) reviewed the recent reported prices and trading activity for the
common stocks of CyberMedia and compared such information and certain
financial information for CyberMedia with similar information for certain
other companies engaged in businesses we consider comparable;
(vi) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(vii) reviewed the Agreement; and
(viii) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Network Associates or
CyberMedia considered in connection with our review of the Proposed Transaction,
and we have not assumed any responsibility for independent verification of such
information. We have not prepared any independent valuation or appraisal of any
of the assets or liabilities of Network Associates or CyberMedia; nor have we
conducted a physical inspection of the properties and facilities of either
company. With respect to the financial forecasts and projections made available
to us and used in our analysis, we have assumed that they reflect the best
currently available estimates and judgments of the expected future financial
performance of Network Associates and CyberMedia. For purposes of this opinion,
we have assumed that neither Network Associates nor CyberMedia is a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion.
It is understood that this letter is for the information of the Board of
Directors in connection with its review of the Proposed Transaction and may not
be used for any other purpose without our prior written consent; provided,
however, that this letter may be reproduced in full in any filings with the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934. This letter does not constitute a recommendation to any stockholder as
to whether such stockholder should accept the Offer.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of the Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view. We
express no opinion, however, as to the adequacy or financial fairness of any
consideration received in the Proposed Transaction by Network Associates or its
affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ DAVID G. GOLDEN
------------------------------------
David G. Golden
Managing Director
A-2
30
SCHEDULE I
CYBERMEDIA, INC.
2850 OCEAN PARK BLVD., SUITE 100
SANTA MONICA, CA 94045
------------------------
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 3, 1998 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to holders of shares (the "Shares") of common stock, $0.01 par
value (the "Common Stock"), of CyberMedia, Inc., a Delaware corporation (the
"Company"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Schedule 14D-9. You are receiving this
Information Statement in connection with the possible election of persons
designated by Cyclone Acquisition Corp. ("Purchaser"), a wholly owned subsidiary
of Networks Associates, Inc. ("Parent"), to the board of directors of the
Company (the "Company Board"). Such designation is to be made pursuant to an
Agreement and Plan of Merger, dated July 28, 1998 (the "Merger Agreement"), by
and among Parent, Purchaser and the Company.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended, and Rule 14f-1 thereunder. YOU ARE URGED TO
READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION.
Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer
to acquire all of the Shares (the "Offer"). The Offer is scheduled to expire at
12:00 Midnight, New York City time, on August 28, 1998, unless the Offer is
extended. Following the successful completion of the Offer, upon approval by a
stockholder vote, if required, and subject to certain other conditions,
Purchaser will be merged with and into the Company (the "Merger").
The information contained in this Information Statement concerning
Purchaser has been furnished to the Company by Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
GENERAL
The Common Stock is the only class of voting securities of the Company
outstanding. Each Share entitles its record holder to one vote. As of July 27,
1998, there were 13,362,540 Shares outstanding.
THE COMPANY'S BOARD OF DIRECTORS
If Purchaser purchases Shares pursuant to the Offer, the Merger Agreement
provides that Parent will be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board as is equal to the
product of the total number of directors (determined after giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Parent or its affiliates
bears to the total number of Shares then outstanding. The Company has further
agreed, upon request of Parent, to promptly take all actions necessary to cause
Parent's designees to be so elected, including, if necessary, increasing the
size of the Company Board (to the extent permitted by the Company's Certificate
of Incorporation and By-Laws) and/or seeking the resignations of one or more
existing directors, provided, however, that prior to the effective time of the
Merger, the Company Board shall at all times have at least two members who are
members of the Company Board on the date of the
I-1
31
Merger Agreement and are neither officers of the Company or any of its
subsidiaries, nor officers or directors of Purchaser or any of its affiliates,
or other independent directors appointed to replace such persons.
Parent has informed the Company that Parent will choose Parent's designees
from the list of persons set forth in the following table. With respect to
Parent's designees, the following table, prepared from information furnished to
the Company by Parent, sets forth the name, age, citizenship, present principal
occupation or employment and five-year employment history for each of the
persons who may be designated by Parent as Parent's designees. Each occupation
set forth opposite a person's name, unless otherwise indicated, refers to
employment with Parent. If necessary, Parent may choose additional or other
Parent's designees, subject to the requirements of Rule 14f-1. Unless otherwise
indicated below, the business address of each person is Network Associates,
Inc., 3965 Freedom Circle, Santa Clara, CA 95054.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL
NAME AND CITIZENSHIP AGE POSITIONS HELD DURING THE PAST FIVE YEARS
-------------------- --- ---------------------------------------------------------
William L. Larson.............. 42 Chief Executive Officer since September 1993. Chairman of
the Board of Directors since April 1995. Director since
October 1993. President from October 1993 to December
1997. Vice President of SunSoft, Inc., a system software
subsidiary of Sun Microsystems, Inc., ("SunSoft"), from
August 1988 to September 1993.
Prabhat K. Goyal............... 43 Chief Financial Officer, Vice President of Finance and
Administration, Treasurer and Secretary since October
1996. Vice President of Finance, Corporate Controller and
Treasurer from April 1996 to October 1996. Director,
Finance and OEM Development, Solaris Products Group for
SunSoft from July 1994 to March 1996. Director, Finance
and Sales Operations of SunSoft from November 1991 to
June 1994.
Zachary A. Nelson.............. 36 General Manager of Total Service Desk Division since
January 1998. Vice President and General Manager of
Network Management from March 1997 to January 1998. From
February 1993 to March 1997, Mr. Nelson was employed in
various capacities, most recently as Vice President of
Marketing, for Oracle Corporation.
Richard A. Hornstein........... 36 Vice President of Legal Affairs and Corporate Development
since January 1998. Director of Legal Affairs from June
1997 to January 1998. Director of Tax from April 1997 to
June 1997. International Tax Manager for Coopers &
Lybrand from October 1995 to April 1997. Tax manager for
KPMG Peat Marwick from August 1993 to September 1995.
Gregory P.G. Wharton........... 28 Manager of Legal Affairs since June 1998. Associate at
Wilson Sonsini Goodrich & Rosati, PC from May 1997 to May
1998. Associate at Sullivan & Worcester LLP from May 1995
to April 1997. Law student at Yale University from August
1993 to May 1995.
Parent has advised the Company that to the best knowledge of Parent, none
of Parent's designees currently is a director of, or holds any position with,
the Company, and except as disclosed in the Offer to Purchase, none of Parent's
designees beneficially owns any securities (or rights to acquire any securities)
of the Company or has been involved in any transactions with the Company or any
of its directors, executive officers or affiliates that are required to be
disclosed pursuant to the rules of the Securities and Exchange Commission (the
"SEC"), except as may be disclosed in the Offer to Purchase. None of Parent's
designees has any family relationship with any director or executive officer of
the Company.
I-2
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Parent has advised the Company that each of the persons listed in the table
above has consented to act as a director, and that none of such persons has
during the last five years been convicted in a criminal proceeding (excluding
traffic violations and similar misdemeanors) or was a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was, or is, subject to a judgment, decree or final
order enjoining future violations of, or prohibiting activities subject to,
federal or state securities laws or finding any violation of such laws or is
involved in any other legal proceeding which is required to be disclosed under
Item 401(f) of Regulation S-K promulgated by the SEC.
It is expected that Parent's designees may assume office at any time
following the purchase by Parent of a majority of outstanding Shares pursuant to
the Offer, which purchase cannot be earlier than August 28, 1998, and that, upon
assuming office, Parent's designees will thereafter constitute at least a
majority of the Company Board.
I-3
33
DIRECTORS AND EXECUTIVE OFFICERS
THE CURRENT MEMBERS OF THE BOARD
The names of the current directors, their ages as of July 27, 1998 and
certain other information about them are set forth below. Some of the current
directors may resign effective immediately following the purchase of Shares by
Purchaser pursuant to the Offer.
YEAR
FIRST
ELECTED A POSITION WITH THE COMPANY OR PRINCIPAL
NAME OF DIRECTOR AGE DIRECTOR OCCUPATION DURING THE PAST FIVE YEARS
---------------- --- --------- --------------------------------------------
Suhas Patil(1)(2)......... 54 1995 Dr. Patil has served as a director of the
Company since September 1995. Since February
1984, Mr. Patil has served as Chairman of
the Board of Cirrus Logic, Inc., which he
founded.
Ronald S. Posner(1)(2).... 56 1995 Mr. Posner has served as a director of the
Company since September 1995. Since June
1997, he has served as Chairman of PS
Capital, a venture capital fund. From 1994
to 1996, he was Chairman of StarPress
Multimedia, Inc. From September 1990 to
October 1993, he served as Chairman of the
Board and Chief Executive Officer of
WordStar International, Inc.
Kanwal Rekhi.............. 51 1995 Mr. Rekhi has served as a director of the
Company since September 1995 and has served
as Chairman of the Board since February
1998. From March 1998 to April 1998, Mr.
Rekhi served as Acting President, and in
April 1998, Mr. Rekhi became Chief Executive
Officer of the Company. From June 1989 to
January 1995, Mr. Rekhi served as an
Executive Vice President and Chief
Technology Officer of Novell, Inc.
("Novell"). Mr. Rekhi also served as a
director of Novell from June 1989 to
September 1995. Mr. Rekhi currently serves
as a director of Exodus Communications Inc.
James R. Tolonen.......... 49 1996 Mr. Tolonen has served as a director of the
Company since August 1996. Effective May 1,
Mr. Tolonen became President and Chief
Operating Officer of the Company. From June
1989 to April 1998, he served as a Senior
Vice President and Chief Financial Officer
of Novell. Mr. Tolonen also served as Chief
Financial Officer of Excelan, Inc. from July
1983 through June 1989 before it was
acquired by Novell. Mr. Tolonen is a
Certified Public Accountant. Mr. Tolonen is
a member and two-term past Chair of the
Issuer Affairs Committee of the Nasdaq.
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Each of the directors has been engaged in the principal occupation(s)
described above during the past five years. There are no family relationships
among any of the directors or executive officers of the Company.
INFORMATION CONCERNING THE BOARD; DIRECTOR COMPENSATION
The Company Board held nine meetings, and took a total of four actions by
unanimous written consent during the fiscal year ended December 31, 1997. Each
of the directors attended at least 75% of the aggregate number of meetings of
the Company Board and each Company Board committee on which he served. The
I-4
34
Company Board has standing Executive, Audit and Compensation Committees, but
does not have a Nominating Committee. The entire Company Board performs the
function of a Nominating Committee.
The Audit Committee of the Company Board, which in 1997 consisted of
Messrs. Posner, Rekhi and Tolonen, and currently consists of Mr. Posner and Mr.
Patil held four meetings during the last fiscal year. The Audit Committee
reviews and advises the Company Board regarding the Company's accounting matters
and is responsible for reviewing and recommending the annual appointment of the
independent public accountants, recommending the engagement of the Company's
independent public accountants and the services to be performed by them, and
reviewing and evaluating the accounting principles being applied to the
Company's financial reports.
The Compensation Committee of the Company Board, which consists of Messrs.
Patil and Posner, held one meeting during the last fiscal year. The Compensation
Committee reviews and advises the Company Board regarding all forms of
compensation to be provided to the officers, employees, directors and
consultants of the Company.
The Company reimburses its directors for the out-of-pocket expenses
incurred in the performance of their duties as directors of the Company. The
Company has not previously paid fees to its directors for attendance at board
meetings. Effective in April 1998, the Company pays an annual board fee of
$10,000 to each outside board member. This fee is initially payable for current
outside Company Board members on May 1, 1998, and then on each anniversary
thereof, subject to continued service as a director of the Company. New outside
Company Board members will be paid their board fee upon first joining the
Company Board, and then on each anniversary thereof while they remain on the
Company Board. Outside Company Board members will also receive a $1,500 per day
stipend for in person attendance at board meetings or committee meetings, with
no more than one stipend per day per member to be paid. Stipends will be paid
within 30 days following the applicable meeting.
The Company's 1996 Director Option Plan (the "Director Plan") which was
approved by the Company Board in June 1996 and the stockholders in August 1996,
and amended by the Company Board and Stockholders in April 1998 and June 1998,
respectively, provides for the automatic and nondiscretionary grant of
nonstatutory stock options to nonemployee directors ("Outside Directors") of the
Company who are first elected to the Board after August 1996. A total of 150,000
shares of Common Stock are reserved for issuance thereunder. Each eligible
Outside Director automatically will be granted an option to purchase 15,000
shares on the date on which such person first becomes an Outside Director
("First Option") at the fair market value of the Company's Common Stock on the
date of grant. Each First Option will become exercisable as to 33% of the shares
subject to the option on the first anniversary of the date of grant and as to
one-third of the shares subject to the option each year thereafter, subject to
continued service as an Outside Director. In addition, each eligible Outside
Director will automatically be granted an option to purchase 5,000 shares on
December 1 of each year, provided he or she has served on the Company Board for
at least six months and was appointed to the Company Board after April 30, 1998
("Subsequent Option"). Each Subsequent Option shall have an exercise price equal
to the fair market value of the Company's Common Stock as of the date of grant
and shall become exercisable as to one-twelfth of the shares subject to the
Subsequent Option two years and one month after the date of grant and as to
one-twelfth of the shares on the last day of each month thereafter, subject to
continued service as an Outside Director. As of July 27, 1998, no shares of
Common Stock subject to options have been granted under the Director Plan and
150,000 shares of Common Stock remain available for future issuance.
I-5
35
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals currently serve as executive officers of the
Company:
NAME AGE POSITION(S) HELD
---- --- ----------------
Kanwal Rekhi......... 51 Chief Executive Officer and Chairman
James R. Tolonen..... 49 President and Chief Operating Officer
Robert Davis......... 40 Vice President and General Manager, Enterprise Products Group
Ken Kucera........... 54 Vice President, Worldwide Sales and Marketing
Srikanth Chari....... 46 Vice President, Marketing
See "The Current Members of the Board" above for background information on
Messrs. Rekhi and Tolonen.
Mr. Davis has served as Vice President and General Manager, Enterprise
Products Group, of the Company since December 1997. From June 1997 until
December 1997, Mr. Davis served as Vice President, Marketing of the Company.
From April 1995 to May 1997 he served as Vice President of Marketing and
Business Development at Iterated Systems, Inc., a software company. From June
1991 to December 1994 he held the position of Vice President and general manager
of the Connectivity Products Division and Senior Vice President of Corporate
Marketing at Novell, Inc., a software company. Mr. Davis holds a B.S. in
Electrical Engineering from Purdue University and an M.B.A. in marketing from
Santa Clara University.
Mr. Kucera has served as Vice President, Worldwide Sales and Marketing
since January 1998. From October 1994 to January 1998, he served as President
and Chief Executive Officer of First Byte, Inc., a software company. From April
1986 to October 1994, he served as Chairman and Chief Executive Officer of
Swallowtail Systems, Inc., a software company. Mr. Kucera holds a B.S. in
Humanities and a B.A. in Philosophy from Loyola University Chicago.
Dr. Chari has served as Vice President, Marketing, since co-founding the
Company in November 1991. From November 1991 to August 1996, Dr. Chari also
served as a director of the Company. From July 1990 to October 1991, he served
as Director of Marketing for NetLabs, Inc. Dr. Chari holds a B.Tech in
Electrical Engineering from the Indian Institute of Technology of Delhi, India,
an M.B.A. from the Indian Institute of Management of Ahmedabad, India and a
Ph.D. in Business from the University of California, Los Angeles.
I-6
36
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of
the other most highly compensated executive officers who earned in excess of
$100,000 in annual salary or bonus during the fiscal year ended December 31,
1997 (the "Named Officers"), information concerning compensation awarded to,
earned by or paid for services to the Company in all capacities during 1997,
1996 and 1995.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR ($) ($) (#) ($)
------------------------------ ---- -------- -------- ------------ ------------
Unni S. Warrier...................... 1997 150,000 169,228 229,000 --
President and Chief Executive
Officer 1996 203,461 -- 150,050 2,053
1995 123,461 500 1,623
Leonard L. Backus.................... 1997 120,000 44,944 -- --
Vice-President, International Sales 1996 76,154 33,120 50,000 2,851
and Marketing 1995 -- -- -- --
Jeffrey W. Beaumont.................. 1997 120,000 5,373 16,000 --
Chief Financial Officer 1996 100,000 -- -- --
1995 4,046 -- 75,000 --
Robert Davis......................... 1997 76,033 34,447 100,000 --
Vice-President, Marketing 1996 -- -- -- --
1995 -- -- -- --
- ---------------
(1) In January, February and March 1998, Mr. Backus, Mr. Beaumont and Mr.
Warrier resigned, respectively.
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to stock
options granted to the Company's Named Officers during the fiscal year ended
December 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ -------------- ---------- --------- ---------
Unni S. Warrier............... 20,000 1.5% 9.00 3/13/07 113,201 286,874
209,000 15.5% 14.75 7/30/07 1,938,725 4,913,110
Leonard L. Backus............. -- -- -- -- -- --
Jeffrey W. Beaumont........... 16,000 1.2% 9.00 3/13/07 90,561 229,499
Robert Davis.................. 100,000 7.4% 14.75 7/30/97 927,620 2,350,770
- ---------------
(1) Under rules promulgated by the Securities and Exchange Commission, the
amounts in these two columns represent the hypothetical gain or "option
spread" that would exist for the options in this table based on assumed
stock price appreciation from the date of grant until the end of such
options' ten-year term at assumed annual rates of 5% and 10%. The 5% and 10%
rates of appreciation are specified by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of future Common Stock prices. The Company does not necessarily
agree that this method properly values an option. Actual gains, if any, on
option exercises are dependent on the future performance of the Company's
Common Stock and overall market conditions and the timing of option
exercises, if any.
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37
The following table provides information concerning option exercises by the
Named Officers during the fiscal year ended December 31, 1997 and the value of
unexercised options at such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE (#)(2) (#)(3)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Unni S. Warrier................ -- -- 116,975 262,125 1,126,181 1,140,639
Leonard L. Backus.............. -- -- 20,833 29,167 240,892 337,258
Jeffrey W. Beaumont............ -- -- 53,500 37,500 656,621 551,613
Robert Davis................... -- -- -- 100,000 -- 31,300
- ---------------
(1) Calculated by determining the difference between the estimated fair market
value of the security underlying the options on the date of exercise and the
exercise price of the options.
(2) The Company has not granted any stock appreciation rights and its stock
plans do not provide for the granting of such rights.
(3) Calculated by determining the difference between the fair market value of
the securities underlying the options at year end ($15.063 per share as of
December 31, 1997) and the exercise price of the options.
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38
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 20, 1998 for (i) each person known to
the Company to be the beneficial owner of more than 5% percent of the
outstanding Common Stock, (ii) each director of the Company, (iii) the Named
Officers, and (iv) all directors and executive officers of the Company as a
group. Except as may be indicated in the footnotes to the table, each such
person has the sole voting and investment power with respect to the Shares
owned, subject to applicable community property laws.
PERCENTAGE
OF CLASS
BENEFICIALLY
OWNED
NAME SHARES BENEFICIALLY OWNED (1)
---- ------------------------- -------------
Suhas Patil(2)............................................ 1,948,729 15.3%
c/o Cirrus Logic, Inc.
3100 West Warren Avenue
Fremont, CA 94538
Pilgrim Baxter & Associates, Ltd.(3)...................... 1,358,200 10.6%
825 Duportail Rd
Wayne, PA 19087
Unni S. Warrier(4)........................................ 831,964 6.2%
c/o CyberMedia, Inc.
3000 Ocean Park Blvd., Suite 2001
Santa Monica, CA 90405
Leonard L. Backus(5)...................................... 4,281 *
Jeffrey W. Beaumont(6).................................... 78,167 *
Robert Davis.............................................. -- *
Kanwal Rekhi(7)........................................... 291,375 2.3%
Ronald S. Posner(8)....................................... 264,200 2.1%
James R. Tolonen(9)....................................... 32,812 *
All Directors and Executive Officers as a group (8
persons)(10)............................................ 3,406,362 26.7%
- ---------------
* Less than 1%
(1) Percent Ownership is based on 12,773,348 Shares outstanding as of April 20,
1998. Unless otherwise indicated below, the persons and entities named in
the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998 are deemed to be outstanding
and to be beneficially owned by the person holding such options or warrants
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Includes 75,000 shares of Common Stock registered to Personal Urban
Transport Corporation of which Mr. Patil is one of two directors. Mr. Patil
disclaims beneficial ownership as to these shares. Mr. Patil is the
individual owner of 1,723,968 shares subject to the community property laws
of the State of California with respect to the Reporting Persons' spouse,
Jayshree Patil. Additionally, 149,761 shares of Common Stock are held
jointly with Mayashree Patil. Includes 28,125 shares subject to the
Company's repurchase option which lapses over time.
(3) This information was obtained from filings made with the Securities and
Exchange Commission pursuant to Section 13(g) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"). Of such 1,358,200, shares,
Pilgrim Baxter & Associates, Ltd. has sole voting power over 1,333,500
shares, shared voting power over 1,358,200 shares and sole dispositive
power over 1,358,200 shares.
(4) Includes 80,000 shares held by Unnikrishnan S. Warrier, Trustee of the Anne
Lam 1996 Children's Trust UTA dated August 26, 1996, of which Mr. Warrier
disclaims beneficial ownership. Includes
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39
156,508 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(5) Includes 4,167 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(6) Includes 75,375 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(7) Represents 37,836 shares held by Kanwal Rekhi, Ann Holt Rekhi and Navinder
Jain, Trustees of the Benjamin Rekhi Trust dated 12/15/89, 37,837 shares
held by Kanwal Rekhi, Ann Holt Rekhi and Navinder Jain, Trustees of the
Raj-Ann Kaur Rekhi Trust dated 12/15/89 and 208,559 shares held by Kanwal
Rekhi as Trustee of the Rekhi Family Trust dated 12/15/89 and 7,143 shares
held by Mr. Rekhi. Includes 28,125 shares subject to the Company's
repurchase option which lapses over time.
(8) Includes 28,125 shares subject to the Company's repurchase option which
lapses over time.
(9) Includes 32,812 shares subject to options that are currently exercisable or
exercisable within 60 days of April 20, 1998.
(10) Includes 268,862 shares subject to outstanding options which are currently
exercisable or exercisable within 60 days of April 20, 1998 as referenced
in footnotes (2) through (9).
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Patil and Mr. Posner. During
1997 Mr. Warrier also participated in discussions regarding salaries and
incentive compensation for all employees (including officers) and consultants to
the Company, except that Mr. Warrier was excluded from discussions regarding his
own salary and incentive compensation.
EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT;
AND CHANGE-IN-CONTROL ARRANGEMENTS; CERTAIN TRANSACTIONS
EMPLOYMENT CONTRACTS
In April 1998, the Company entered into employment agreements with each of
Mr. Rekhi and Mr. Tolonen in connection with their appointments as Chief
Executive Officer, and President and Chief Operating Officer, respectively. In
April 1998, in connection with these employment agreements, the Company entered
into both stock option agreements and restricted stock purchase agreement with
each of Mr. Rekhi and Mr. Tolonen.
The agreements provide, among other things, for annual base salaries of
$275,000 and $250,000 for Messrs. Rekhi and Tolonen, respectively, with bonus
targets of 100% of base salary based upon achievement of performance objectives
and additional sign-on and two subsequent annual bonuses of $356,000, $300,000
and $300,000 for Mr. Rekhi, and $227,500, $200,000 and $200,000 for Mr. Tolonen,
based upon continued employment.
The agreements also provide for the fair market value purchase of 150,000
and 100,000 restricted shares of the Company's Common Stock by Messrs. Rekhi and
Tolonen respectively, in exchange for full-recourse, interest-bearing notes. The
aggregate principal amount of each note is $956,250 and $637,500, respectively.
The interest rate for both of these notes is 5.43% per annum, compounded
semiannually. The shares are subject to a thirty-six month declining repurchase
right by the Company that lapses in the event of certain share price attainment,
change of control or certain revenue and profitability achievement. As of July
27, 1998, $745,628 and $502,907 were outstanding under each of these notes.
The agreements also provide for the grant to Mr. Rekhi of an option to
acquire 528,000 shares of the Company's Common Stock at a $10 per share price (a
57% premium over the fair market value on the date of grant); and for the grant
to Mr. Tolonen of an option to acquire 100,000 shares of the Company's Common
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Stock at fair market value on the date of grant, and an option to acquire
306,000 shares at a $10 per share price (a 57% premium over the fair market
value on the date of grant), all such options vesting over four years.
Mr. Robert Davis currently serves as Vice President and General Manager of
the Enterprise Products Group. Mr. Davis' annual compensation consists of (i)
base compensation of $190,000 per year, (ii) performance-oriented bonus
compensation of up to an aggregate of $70,000 in 1998, payable quarterly based
upon achieving quarterly revenue and budget targets, (iii) an option to purchase
100,000 shares of Common Stock of the Company, subject to four year vesting and
(iv) an option to purchase 50,000 shares of Common Stock of the Company, subject
to two year vesting.
Mr. Kenneth Kucera currently serves as Vice President, Worldwide Retail
Sales. Mr. Kucera's annual compensation consists of (i) base compensation of
$170,000 per year, (ii) performance-oriented bonus compensation of up to $22,500
per quarter based upon achieving quarterly revenue and budget targets allowing
bonuses, (iii) an option to purchase 100,000 shares of Common Stock of the
Company, subject to four year vesting and (iv) an option to purchase 50,000
shares of Common Stock of the Company, subject to two year vesting.
Mr. Srikanth Chari currently serves as Vice President, Marketing. Mr.
Chari's annual compensation includes (i) base compensation of $200,000 per year,
(ii) performance-oriented bonus compensation of up to $15,000 per quarter based
upon achieving quarterly targets allowing bonuses, (iii) an option to purchase
16,667 shares of Common Stock of the Company, which are fully vested and (iv) an
option to purchase 100,000 shares of Common Stock of the Company, subject to two
year vesting.
Certain elements of the salary, bonus, notes, stock option vesting and
lapsing of the Company's repurchase rights, accelerate in the event of
termination either following a change of control or not for cause.
CERTAIN AGREEMENTS AND PLANS
Executive Employment Policy. The Company established an Executive
Employment Policy (the "VP Policy") applicable to each Vice President ("VP") of
the Company. Pursuant to the VP Policy, upon a Termination due to Change of
Control (as defined below) of a VP or upon a Termination without Cause of a VP
without Cause (as defined below), such VP is entitled to the following. Only one
instance of each of the severance benefits below shall be given to such VP
qualified to receive such benefits.
Severance Payment. Such VP will receive a lump sum severance payment (the
"Severance Payment") equal to six (6) months annual base salary in effect
immediately prior to the termination, subject to all applicable withholding and
employment taxes. The Severance Payment will be reduced by the amount of pay the
VP receives in lieu of notice under the Worker Adjustment and Retraining Act, if
applicable. The VP Policy provides that the benefits provided under the VP
Policy shall be in lieu of any other severance plan benefits provided by the
Company under any other plan, policy, or agreement, such that the severance
benefits payable under the VP Policy shall be reduced by any severance paid or
payable to the VP by the Company under any other plan, policy or agreement;
provided, however, that if a VP is entitled under any prior written and executed
agreement to severance benefits that are greater than the severance benefits
provided under the VP Policy, the VP shall not forfeit his/her rights to the
difference between the severance benefits provided under such agreement and the
severance benefits provided under the VP Policy.
Coverage under COBRA If a VP elects COBRA continuation coverage pursuant to
federal law, the Company shall pay the VP's COBRA premiums for a six month
period after such VP's termination.
Acceleration of Option Vesting. In addition to any vesting or accelerated
vesting under the Company's Option Plans (as defined below in "Company Stock
Plans"), such VP's unvested stock options shall immediately vest as if the VP
were employed for an additional 12 months. Such VP shall have 90 days following
his or her termination date to exercise vested shares. The period to exercise
shall be extended, but only as long as necessary in order to allow the VP to
exercise such options without violating regulatory trading rules.
Benefits. Such VP shall receive the benefits, if any, under the Company's
401(k) Plan, employee bonus plans, employee stock purchase plans and other
Company benefit plans to which the VP may be entitled pursuant to the terms of
such plans. The VP's participation and rights in other benefit plans as may be
provided by the Company at the time of his or her termination of employment
shall be governed solely by the terms and conditions of such other plans, if
any. All other wages and vacation accrued through the date of
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termination shall be paid, but there shall be no proration of incentive bonus
unless "earned" under the provision of the applicable incentive bonus plan.
As used in the VP Policy, (i) a "Termination due to Change of Control"
means a Termination without Cause that occurs within one year after a Change of
Control, as defined below; (ii) "Termination without Cause" means (A) any
termination of a VP initiated by the Company unless Cause (as defined below) is
the grounds for termination; (B) any termination of a VP, initiated by a VP, for
a reason that constitutes a Constructive Termination (as defined below); or (C)
a termination, initiated by a VP, because any successor to the Company fails to
assume the obligations under the VP Policy; provided that notwithstanding the
foregoing, the term "Termination without Cause" shall not mean any termination
of a VP due to a VP's death, retirement, or permanent disability; (iii) "Cause"
means (A) any act of fraud, misappropriation, embezzlement, or other act of
material and unlawful dishonesty taken by a VP against the Company; (B) the
conviction of a felony which the Company reasonably believes had or will have a
material detrimental effect on the Company's reputation or business, (C) any act
by a VP which constitutes gross misconduct and is injurious to the Company and
(D) any act by a VP which the Company determines constitutes a breach of
security and is injurious to the Company; (iv) Change of Control means the
occurrence of any of the following events: (A) a merger or consolidation
involving the Company in which the shareholders of the Company immediately prior
to such merger or consolidation own less than 50% of the voting power of the
surviving corporation, (B) the sale of all or substantially all, of the assets
of the Company or (C) any person, (as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act")) or group (within the meaning of Rule 13d
of the Exchange Act) becoming the beneficial owner (within the meaning of Rule
13d-3 of the Exchange Act) of securities representing more than 50% of the
voting power of the Company then outstanding; and (v) "Constructive Termination"
means the occurrence of any of the following conditions, without the Executive's
written consent, which condition(s) remain(s) in effect 20 days after written
notice to the Company Board from a VP of such condition(s): (A) a decrease in a
VP's base salary, or material decrease in a VP's annual target bonus, quarterly
bonus, or employee benefits; (B) a material decrease in a VP's position,
authority, duties and responsibilities; or (C) the relocation of a VP to a
facility or location more than thirty (30) miles from the VP's then-existing
facility or location.
COMPANY STOCK PLANS
The Company maintains the Amended 1993 Stock Plan, and the 1996 Director
Option Plan, as amended (the "Option Plans"). Pursuant to the Merger Agreement,
at the Effective Time, each option to purchase Common Stock under any of the
Option Plans will be assumed by the Parent and will be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such option (including, without limitation, any repurchase rights or vesting
provisions) shares of the common stock, $0.01 par value, of Parent ("Parent
Common Stock"), except that (i) such option will be exercisable for that number
of shares of Parent Common Stock equal to the product of the number of Shares
that were issuable upon exercise of such option immediately prior to the
Effective Time multiplied by a fraction, the numerator of which is the
consideration paid in the Merger and the denominator of which is the average of
the last reported sale prices of the Parent Common Stock on the five trading
days immediately preceding the date of the effective time of the Merger, rounded
down to the nearest whole number of shares of Parent Common Stock and (ii) the
per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed option will be equal to the aggregate exercise price
for the Shares purchasable pursuant to such assumed option immediately prior to
the effective time of the Merger divided by the full number of shares of Parent
Common Stock purchasable thereafter in accordance with the foregoing, rounded
down to the nearest whole cent. Within five business days after the Effective
Time, Parent will file a registration statement on Form S-8 with respect to the
shares of Parent Common Stock subject to the assumed options and will use its
best efforts to maintain the effectiveness of such registration statement for so
long as such options remain outstanding.
SETTLEMENT AGREEMENTS
The Company is party to a Settlement Agreement and Mutual Release with Unni
S. Warrier dated March 12, 1998 which accelerated the vesting of 53,125 options,
and such acceleration in the amount of $454,000 was expensed in the first
quarter of 1998. The Company also agreed to pay Mr. Warrier a severance payment
of $175,000, which has been paid in full.
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The Company is a party to a Settlement Agreement and Mutual Release with
Jeffrey Beaumont dated February 9, 1998 which accelerated the vesting of 18,749
options, and such acceleration in the amount of $128,000 was expensed in the
first quarter of 1998. The Company also agreed to pay Mr. Beaumont a severance
payment of $65,000 in installments through August 9, 1998.
INDEMNIFICATION
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent such
exemption from liability is not permitted by the DGCL.
The Company's Bylaws provide that the Company shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director or officer of the
Company, or that such director or officer is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company has previously entered into indemnification agreements with
each of its directors and officers. The indemnification agreements generally
provide: (i) for indemnification to the fullest extent permitted by law if an
indemnitee was or is or becomes a participant in, or is threatened to be made a
participant in, any threatened, pending or completed action, suit, proceeding or
alternative dispute resolution mechanism, or any hearing, inquiry or
investigation that the indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other by reason of (or arising in part out of) any event or occurrence related
to the fact that the indemnitee is or was a director or officer of the Company,
or any subsidiary of the Company, or is or was serving at the request of the
Company as a director or officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of the indemnitee while serving in such
capacity against any and all expenses (including attorneys' fees and all other
costs, expenses and obligations incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any such action, suit,
proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation, judgments, fines, penalties and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) of the claim and (ii) for advancement of all expenses
incurred by the indemnitee.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons beneficially owning more than 10% of the
outstanding Common Stock of the Company to file reports of ownership and changes
in ownership with the SEC. Officers, directors and greater than 10% holders of
Common Stock are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or
written representations that no forms were required, the Company believes that
for the fiscal year ended December 31, 1997, all Section 16(a) filing
requirements applicable to its officers, directors and owners of greater than
10% of its Common Stock were complied with.
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1 Agreement and Plan of Merger, dated July 28, 1998, by and
among Networks Associates, Inc., Cyclone Acquisition Corp.
and CyberMedia, Inc., including Conditions to the Offer.
2 Stock Option Agreement, dated July 28, 1998, by and between
Networks Associates, Inc., and CyberMedia, Inc.
3 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kanwal Rekhi.
4 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and James R. Tolonen.
5 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Suhas Patil.
6 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Ronald S. Posner.
7 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Robert Davis.
8 Support Agreement, dated as of July 28, 1998, by and between
Networks Associates, Inc. and Kenneth Kucera.
9 Note Purchase and Security Agreement, made as of July 28,
1998, by and among CyberMedia, Inc. and Networks Associates,
Inc.
10 Secured Subordinated Convertible Promissory Note, dated July
28, 1998, made by CyberMedia, Inc. for the benefit of
Networks Associates, Inc.
11 Executive Employment Policy.
12 Letter to Stockholders of CyberMedia, Inc., dated August 31,
1998.
13 Fairness Opinion of Hambrecht & Quist LLC, dated July 28,
1998.
14 Confidentiality Agreement, dated June 9, 1998, by and
between Networks Associates, Inc. and CyberMedia, Inc.
15 Form of Indemnification Agreement and provisions regarding
indemnification of directors and officers from the Company's
Certificate of Incorporation and Bylaws.
16 Pages 6-11 of the Proxy Statement, dated May 6, 1998, for
the Annual Stockholder meeting on June 10, 1998.
17 Class Action Complaint filed by Stanley Schneider in the
Court of Chancery in the State of Delaware dated July 28,
1998.